Types of Budgets

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Budgeting Basics

Master Budget
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Overall financial and operating plan Prepared annually of quarterly A number of sub budgets tied together A Summary

Operating and Financial Budgets

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Deals with costs of merchandise or services produced Examines expected assets, liabilities, and stockholders equity of business Gives picture of companys financial health

Cash Budget
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For cash planning and control Expected cash inflow and outflow for designated period Consists of 4 major sections

Receipts: beginning cash balance, cash collections from customers, and other receipts Disbursement: comprised of all cash payments Cash surplus or deficit: difference between cash receipts and cash payments Financing: detailed account of the borrowings and repayments expected during period

Fixed Budget
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Is budgeted figures at the expected capacity level Used when companies are stable Lacks flexibility to adjust to unpredictable changes

Expense Budgets
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Most commonly used Very versatile Four steps in preparing expense budgets

Determine relevant range over which activity is expected Analyze costs that will be incurred over relevant range to determine cost behavior patterns (variable, fixed, mixed) Separate costs by behavior Using formula for variable portion of costs, prepare budget showing what costs will be incurred at various points throughout relevant range

Capital Expenditure Budget

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A listing of long term projects to be undertaken Typically three to ten years Classified by objective
Expansion/enhancement Cost reduction/replacement Development of new product Health and safety expenditures

Strategic Budgets
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Integrates strategic planning and budgeting control Effective under conditions of uncertainty and instability

Target Budget
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Major expenditures are matched to company goals Strict justification for large dollar and special project requests

Continuous Budget
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Revised on regular basis Also known as rolling budget

Company will extend budget for another month or quarter as new data on current period ends