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Budget Preparation and Management Overview

The document discusses the differences between budgets and forecasts, with budgets being financial plans agreed in advance, while forecasts predict what may happen. It provides details on the purpose of setting budgets, which is to control income and expenses, establish targets, and assign responsibilities. The summary outlines the stages involved in budget preparation, including setting the period, obtaining forecasts and past results, preparing subsidiary budgets, and creating a master budget and projected financial statements.

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2K views15 pages

Budget Preparation and Management Overview

The document discusses the differences between budgets and forecasts, with budgets being financial plans agreed in advance, while forecasts predict what may happen. It provides details on the purpose of setting budgets, which is to control income and expenses, establish targets, and assign responsibilities. The summary outlines the stages involved in budget preparation, including setting the period, obtaining forecasts and past results, preparing subsidiary budgets, and creating a master budget and projected financial statements.

Uploaded by

bushraanwar
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
  • Settings Budget Chapter 41

Settings Budget

Chapter 41
Budget vs Forecating

 Budget is a plan which  Forecasting is the


is agreed in advance prediction what might
happen in future
 E.g How much money
be needed for  E.g past pattern of
spending and how to sales
be financed

 Budget based on
objectives of business
Budget

A budget is a financial plan for the future


concerning the revenues and costs of a
business. A budget shows the money needed
for spending how this might be financed.
Information contained in a budget may include
revenue, sales, expenses, profits, cash and
capital expenditure.
The reasons for setting budget

 Control income and expenditure


 Establish priorities and set targets in numerical terms
 Provide direction and co-ordination, so that business
objectives can be turned into practical reality
 Assign responsibilities to budget holders (managers)
and allocate resources
 Communicate targets from management to
employees
 Motivate staff
 Improve efficiency and Monitor performance
Summary of the stages involved in budget preparation

State aim and


Set budget period
objective of budget

Forecasts Provide information Past results

Prepare budget

Co-ordinate
subsidiary budget

Master budget

Projected balance sheet and profit


and loss account
 Decide on a budget period and state the objectives
and targets which are to be achieved.
 Obtain information upon which to base the budget
 Prepare Budget. Two important budgets are sales
budget and production budget. These budgets are
related and affect all other budgets.
 Draw up subsidiary budgets .Budgets can be
broken down so that each person in the hierarchy
can be given some responsibility for the section of
the budget.
 The Master Budget is a summary statement of all
budgets.e.g it shows estimated income,
anticipated expenditure, and , thus, the budgeted
profit for the year.
 The cash budget is prepared when all other budget
is prepared. This budget is useful since it shows the
monthly flow of cash into and out of the business.
 Prepare the projected balance sheet and profit and
loss of the business. These show the financial
position that will result from the firm’s budgets
Problems of setting budgets

• Using planned figures: Problems tend to arise


because figures in budget are not actual figures.
• Collecting of Data: The setting of budget is
some businesses may require deal of coordination
among different parts of businesses.
• Conflict: The setting of budgets may lead to
conflict between staff e.g. one person may have
limited funds may want to spend on marketing but
other one feel that a new machinery is needed.
 Cost : The time spent setting budgets could
have spent on other tasks .
 Over ambitious objectives.
 External influences: It is difficult to plan
ahead because of large and unpredictable
changes in the external environment.

Settings Budget Chapter 41
Budget vs Forecating Budget is a plan which is agreed in advance E.g How much money be needed for spending and how to
Budget A budget is a financial plan for the future concerning the revenues and costs of a business. A budget shows the mon
The reasons for setting budget Control income and expenditure Establish priorities and set targets in numerical terms Pr
Summary of the stages involved in budget preparation

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