Understanding Budget and its Types

Budgeting is an important tool for managing resources and achieving goals. Learn about different types of budgets such as family, master, cash, imposed, flexible, and budgetary control.

Understanding Budget and its Types

A budget is a quantitative plan for acquiring and using resources over a specific period. It is a summary or plan of the expected resources and expenses of a government, family, or company. People usually create family budgets that balance their income and expenses on food, clothing, housing, etc., while providing some savings. On the other hand, companies need master budgets that integrate different departments to manage fixed expenses that have no relation to the volume of production.

Cash budget is an analysis of estimated data for an upcoming period. It takes into account probable market demand, competitive opportunities, and price changes for budget preparation. Management usually uses three important ratios to determine whether deviations from budgeted results are favorable or not. A well-defined organization chart is essential for a budgetary system to succeed as it ensures more careful planning and optimal allocation of resources.

Imposed budgeting is a top-down process in which executives adhere to a goal they have set for the company. This greater participation in the budgeting process by lower-level employees can facilitate the fulfillment of budget goals, since employees feel that they have a more personal interest in the success of the budget plan. The amount of the flexible budget for a specific level of activity is determined differently depending on whether the cost is variable or fixed. The budget officer must be directly accountable to the executive director and acts as secretary of the budget committee. Budgeting is an important tool for managing resources and achieving goals.

It provides detailed information, objectives and goals that can help companies achieve their objectives. It also ensures careful planning and optimal allocation of resources since all activities included in the budget are justified by cost and benefit considerations. Budgetary control is “advance budgeting”: setting budgets and then applying them in order to ensure control of a company's activities.

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