PREPARING A BUDGET
PLAN
In our
personal
pursuit, a
budget is a
vital part of
our life.
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Having a budget
allows you to see
how much money
you earn and
spend over a
period of time.
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Budget helps you to
make good choices
for spending your
money on what you
need or want now
and saving your
money for what you
think you’ll need or 4
IT’S NOT ABOUT THE MONEY
For students, their allowance is the amount
of money used for their your daily expenses.
In this activity, think about your allowance
and the ways on how you allocate it for
different purposes.
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1. HOW MUCH IS YOUR DAILY
ALLOWANCE? DO YOU RECEIVE IT
DAILY, WEEKLY, OR MONTHLY?
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2. HOW DO YOU ALLOCATE YOUR DAILY
ALLOWANCE? DESCRIBE THE
BREAKDOWN OF YOUR ALLOWANCE IN
PERCENTAGE.
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3. AS A STUDENT, WHAT IS THE
IMPORTANCE OF PROPER ALLOCATION
OF YOUR DAILY ALLOWANCE?
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What is the role of budget in planning and
controlling?
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BUDGET
Definition
● A budget is a type of
plan expressed in a
quantitative manner set
by the management for a
specific period of time.
● It shows the
organization’s projected
income and expenditures
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ROLE OF BUDGETING IN A BUSINESS ENTERPRISE
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BUDGET
Budget as a Planning Tool
● Budgeting is a planning
tool that translates all the
plans of the company in
quantitative terms.
● The goals and objectives
are expressed in financial
terms, such as targeted
sales and corresponding
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Budget as a Planning Tool
Nickson wants to establish a
new branch of his internet
rental service business. He
realized the demand for
internet rental services
grew significantly, so he
needed to have an
additional branch to cater to
his other customers. 13
BUDGET
Budget as a Controlling Tool
A budget is also
considered a controlling
tool because it helps keep
track of costs and expenses
and identify whether they
are above or within the
organization's set limits.
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BUDGET
Budget as a Controlling Tool
Budgeting involves an
analysis of budget and cost to
determine budget
variances, the difference
between the planned budget
and the actual expenses
incurred or amount spent after
an activity or a project.
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BUDGET
Budget as a Controlling Tool
● A positive variance means the budgeted
amount is larger than the actual amount spent.
● A negative variance happens when actual
costs or expenses are more than the planned
budget.
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BUDGET
Comparison of planned budget and actual cost
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What is the importance of budget in a
business enterprise?
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APPROACHES TO BUDGETING
Incremental Budgeting
This approach uses actual
figures from the previous
year and adds or subtracts
a percentage to obtain its
current year's budget.
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APPROACHES TO BUDGETING
Zero-Based Budgeting
● This approach refers to making a budget from
scratch.
● Managers must be able to explain and justify
every single expense under their departments.
No expenditures are automatically approved.
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APPROACHES TO BUDGETING
Activity-Based Budgeting
It is a top-down budgeting
approach (the top and senior
management prepare a high-
level budget for the company)
that determines the amount of
inputs required to support the
company's targets or outputs.
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APPROACHES TO BUDGETING
Value Proposition Budgeting
● This approach makes sure that all activities and
expenditures included in the company's budget
provide value to the company, employees,
customers, and other stakeholders.
● It aims to avoid and remove unnecessary and non-
essential expenditures.
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TYPES OF BUDGET
Sales Budget
A sales budget
determines how the
resources should be
allocated to achieve
forecasted sales.
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TYPES OF BUDGET
Production Budget
● The production budget is commonly expressed
in physical units or quantity.
● It determines the number of units or outputs aimed
to be produced to meet the customers' demands
based on the sales forecast and sales budget.
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TYPES OF BUDGET
Cost Budget
A cost budget forecasts
the future expenditures
that the company is
expected to incur in the
future based on projected
revenues and sales.
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TYPES OF BUDGET
Cash Budget
A cash budget is a budget of
expected cash receipts (inflow)
and disbursements (outflow)
during a specific period.
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TYPES OF BUDGET
Master Budget
● A master budget consolidates all of the smaller
budgets within your organization and turns them
into one overall budget.
● It is known as the “budget of budgets.”
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TYPES OF BUDGET
Fixed Budget
A fixed budget is a type of
budget that does not change
regardless of the increase or
decrease in volume of products
produced or level of income.
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TYPES OF BUDGET
Flexible Budget
A flexible budget is a
type of budget that
adjusts to changes in
actual income or
production levels.
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STEPS IN PREPARING A BUDGET PLAN
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STEPS IN PREPARING A BUDGET PLAN
1. Identify your revenue
sources.
During the drafting of a
budget, income should
be computed prior to
deducting expenses.
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STEPS IN PREPARING A BUDGET PLAN
2. Determine your fixed costs.
● After determining your income sources, you
have to know your fixed costs.
● Fixed costs are the expenses that stay the
same from month to month or year to year.
● Examples are rent, internet, telephone, payroll
costs, insurance, and property taxes
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STEPS IN PREPARING A BUDGET PLAN
3. Determine variable costs.
● Variable expenses are expected to change
daily, monthly, weekly or yearly.
● Variable costs can include sales commissions,
costs of raw materials used in production,
delivery or shipping costs, electricity, etc.
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STEPS IN PREPARING A BUDGET PLAN
4. Set aside a contingency fund.
● Contingency fund is the amount of money set
aside to cover possible unforeseen future
expenses.
● Contingency fund aims to secure a company's
financial stability by having a reserved fund
that the organization can use to fill emergency
needs. 34
STEPS IN PREPARING A BUDGET PLAN
5. Review, revise, and assemble the final budget.
● Compare the amount of money from your
income sources and the expected expenses of
the business.
● Ask significant stakeholders to take a look at
your budget plan, and revise it if needed.
● Distribute your budget plan to the stakeholders
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Why should revenues be considered first in
making the budget plan?
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● A budget is a plan expressed quantitatively. It is
prepared by the management and pertains to a
specific period of time. It presents the
organization’s income and expenditure for the
year ahead.
● As a planning tool, the budget translates
organizational plans into numerical figures. It
sets how many resources are required to
accomplish an organization’s goals. As a
controlling tool, it helps keep track of costs
and expenses and identify whether they are
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● Different types of budgets exist based on
what they quantify or how they are
formulated. These include:
○ Sales budget;
○ Production budget;
○ Cost budget;
○ Cash budget;
○ Master budget;
○ Fixed budget; and
○ Flexible budget.
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● Developing a budget is a sequential
process that follows these steps:
1. Identify revenue sources.
2. Determine fixed costs.
3. Determine variable costs.
4. Set aside a contingency fund.
5. Review, revise, and assemble the
final budget.
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TRUE OR FALSE. WRITE TRUE IF THE
STATEMENT IS CORRECT. OTHERWISE, WRITE
FALSE.
1. BUDGETING IS AN IMPORTANT
FACTOR IN THE SUCCESS OF A
BUSINESS ENTERPRISE.
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TRUE OR FALSE. WRITE TRUE IF THE
STATEMENT IS CORRECT. OTHERWISE, WRITE
FALSE.
2. THERE ARE FOUR STEPS INVOLVED
IN DEVELOPING A BUDGET PLAN.
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TRUE OR FALSE. WRITE TRUE IF THE
STATEMENT IS CORRECT. OTHERWISE, WRITE
FALSE.
3. A BUDGET IS A USEFUL TOOL THAT
CAN BE USED IN THE PLANNING AND
CONTROLLING FUNCTIONS OF A
BUSINESS ENTERPRISE.
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TRUE OR FALSE. WRITE TRUE IF THE
STATEMENT IS CORRECT. OTHERWISE, WRITE
FALSE.
4. A MASTER BUDGET IS KNOWN AS THE
“BUDGET OF BUDGETS.”
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TRUE OR FALSE. WRITE TRUE IF THE
STATEMENT IS CORRECT. OTHERWISE, WRITE
FALSE.
5. BUDGETS ARE MONETARY ALLOTMENT
FOR A CERTAIN PROJECT.
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