BUDGET

SUBMITTED BY:Jappanjyot

INTRODUCTION
The annual Budget of India, which is presented by the finance minister in Parliament, is referred to as the annual Financial Statement in Article 112 of the Constitution. It lays down the proposals for estimated income and expenditure of the Union government for the coming financial year, and has to be passed by the Parliament before it can come into effect on April 1. The Union Budget 2012 will be presented by finance minister Pranab Mukherjee on March 16. Normally the Budget is presented on the last day of February, but because of elections to five state assemblies it was postponed this year.

DEFINITION
A budget is a financial document used to project future income and expenses. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses. A budget may be prepared simply using paper and pencil, or on computer using a spreadsheet program like Excel, or with a financial application like QuickBooks.

The process for preparing a monthly budget includes:

Listing of all sources of monthly income
Listing of all required, fixed expenses, like rent/mortgage, utilities, phone

Listing of other possible and variable expenses

ADVANTAGES
1. Budget aids planning this is not mere forecast but a forecast with numerical expressions. 2. Budget helps in achieving coordination as activities in organization are inter related, budget coordinates the expected performance of each department and gives a consolidated picture. 3. Control function is facilitated by budget it helps to measure performance and focuses attention on deviations for corrective actions. 4. Budget assists in fixing responsibility the executive concerned knows what he is accountable for in the light of the results expected to be achieved.

ADVANTAGES
5. The control information's supplied for budget helps decision making of the managers concerned. 6. Budget forces the organization to quantity, i.e. state in figures what is required to be achieved. 7. Budget promotes division of work and specialization. Specialization brings efficiency not only in the working of employees but in the organization as a whole. 8. Budgetary control brings about an overall improvement in the working efficiency of an organization.

DISADVENTAGES
A budget promotes managers gamesmanship, knowing they will be reduced, or they are in effect rewarded by getting what they probably really wanted A budget may reward managers who set modest goals and penalize those who set ambitious goals that are missed A budget does not consider quality and customer service It is difficult to reconcile personal/individual and corporate goals Budget could forces managers may overestimate costs so that they will not be blamed in the future should they overspend

OBJECTIVES
A budget helps the company in forecasting the future cash inflows and cash outflows Budget also helps the company in comparing the actual results with the budget and if any discrepancy is there then company can take steps to ensure that such mistakes are not repeated again. Budget can be extremely helpful if company is into business where the credibility is of utmost importance because if company has budget statement in advance than company will know in advance about the obligations and therefore it will make adequate provision for such obligations and hence the company will not have to face any embarrassment. Budget is also a sort of motivational tool because if company or top management has prepared a budget and all the employees are made aware of that budget than employees of a company will also be motivated to achieve the desired results which are laid out in budget and therefore it can be a great source of motivation for the employees of the company.

DIFFERENT TYPES OF BUDGETS

Budgets may be classified on the following bases

1. Time Period a. Long term

2. Conditions

3. Capacity

4.Coverage

b. Master Budget

a. Basic Budget b. Short term

a. Fixed Budget a. Functional Budget b. Current Budget b. Flexible Budget

1. BASED ON TIME PERIOD:

Long Term Budget a. Budgets which are prepared for periods longer than a year are called Long Term Budgets. b. Such Budgets are helpful in business forecasting and forward planning. c. Examples: Capital Expenditure Budget and R&D Budget. Short Term Budget a. Budgets which are prepared for periods less than a year are known as Short Term Budgets. b. Such Budgets are prepared in cases where a specific action has to be immediately taken to bring any variation under control. c. Example: Cash Budget.

BASED ON CONDITION:
Basic Budget A Budget, which remains unaltered over a long period of time, is called Basic Budget. A Budget, which remains unaltered over a long period of time, is called Basic Budget. Current Budget A Budget, which is established for use over a short period of time and is related to the current conditions, is called Current Budget.

3. BASED ON CAPACITY:
Fixed Budget Flexible Budget

It is a Budget designed to It is a Budget, which by remain unchanged irrespective recognizing the difference of the level of activity actually between fixed, semi variable attained. and variable costs is designed to change in relation to level of activity attained.

4. BASED ON COVERAGE:
Functional Budget Budgets, which relate to the individual functions in an organization, are known as Functional Budgets, e.g. purchase Budget, Sales Budget, Production Budget, plant Utilization Budget and Cash Budget. Master Budget It is a consolidated summary of the various functional budgets. It serves as the basis upon which budgeted Profit & Loss Account and forecasted Balance Sheet are built up.

BUDGETARY CONTROL
Budgetary Control is defined as "the establishment of budgets, relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results either to secure by individual action the objective of that policy or to provide a base for its revision.

OBJECTIVES OF BUDGETARY CONTROL SYSTEM

1. Definition of Goals: Portraying with precision, the overall aims of the business and determining targets of performance for each section or department of the business. 2. Defining Responsibilities: Laying down the responsibilities of each individual so that everyone knows what is expected of him and how he will be judged. 3. Basis for Performance Evaluation: Providing basis for the comparison of actual performance with the predetermined targets and investigation of deviation It helps to take timely corrective measures. 4. Optimum use of Resources: Ensuring the best use of all available resources to maximize profit or production, subject to the limiting factors. 5. Coordination: Coordinating the various activities of the business and centralizing control, but also making a facility for the Management to decentralize responsibility and delegate authority. 6. Planned action: Engendering a spirit of careful forethought, assessment of what is possible and an attempt at it. It leads to dynamism without recklessness. It also helps to draw up long range plans with a fair measure of accuracy. 7. Basis for policy: Providing a basis for revision of current and future policies.