The procedure for preparing plan in respect of

future financial and physical requirement.

The budgeted income statement and balance sheet

are also known as pro-forma financial statements.
OBJECTIVES

Planning

Coordination

Allocate
resources

Measure
performance
 Keep you focus on your money goal
Give you control over your money

Make you aware what is going on with your money

Helps you organize your saving and spending

Enables you to produced extra money

The basic elements of a budget are as follows:
It is a comprehensive and coordinated plan of
action.
It is a plan for the firms operations and resources.

It is based on objectives to be attained.

It is related to specific future period.

It is expressed in financial and/or physical units.

Forecasting is the process of making predictions of
the future based on past and present data and most
commonly by analysis of trends. A commonplace
example might be estimation of some variable of
interest at some specified future date.
 Budgeting is the process of preparing and using
budgets to achieve management objectives.
It is the systematic approach for accomplishing the
planning, coordination, and control responsibilities
of management by optimally utilizing the given
resources.
Define goal and objective, benchmark

Getting managers to think about and plan for

the future

Means of allocating resources efficiently

Uncover potential bottlenecks

 Inaccuracy

Time-
Scope for Consuming
Manipulation &
Costly

Limitation

Excessive
Rigidity
Spending
 Budgetary Control involves use of the budgeting
techniques to help the management for carrying out
the various functions viz. Planning, Organizing, Co-
ordinating and Controlling the activities of a
business.
 To motivate
To provide a detailed
organizational member
plan of actions
to perform well

To coordinate the
To exercise cost control
different units and the
on
activities of organization
 Budgets can be prepared for different
functions of business

Budgets have wide range of coverage

for the entire organization
Scope
It is concerned with the origin of
expenditure at functional level

Budget is the projection of functional

accounts
 Clear cut objectives and goals should be well defined

A budget should always be related to a specified time

period

Adequate accounting system is essential to make

budgeting successful.
 Profit
Maximization
 Does not
Not much
replace Less Flexible
management Reliable

Deals with
Costly
quantitative
System
data
On the basis of Time
Long term Budget

Short term Budget

Sales Budget

Purchase Budget

Production Budget
Selling And Distribution cost
budget
Labour Cost Budget

Cash Budget

Capital Budgeting
Fixed Budget

Flexible
Budget
 Sales budget is the first and basic component of
master budget and it shows the expected number
of sales units of a period and the expected price
per unit.

It also shows total sales which are simply the

product of expected sales units and expected price
per unit.
 The production budget calculates the number of
units of products that must be manufactured.
 MATERIALS BUDGET
The direct materials budget calculates the materials
that must be purchased, by time period, in order to
fulfill the requirements of the Production budget.
 A cash budget is a budget or plan of expected cash
receipts and disbursements during the period.

In other words, a cash budget is an estimated

projection of the companys cash position in the
future.
 The master budget is the aggregation of all lower-
level budgets produced by a company's various
functional areas, and also includes
budgeted financial statement, a cash forecast, and
a financing plan.

The master budget is typically presented in either a

monthly or quarterly format, and usually covers a
company's entire fiscal year.
 ICMA, London, defines Fixed Budget as, a budget
which is designed to remain unchanged irrespective
of the volume of output or turnover achieved.
 Controlling Business Costs:
A static budget does not adjust its volume during
the year regardless of sales figures or company
performance.
For example, if the budget for sales commission in
your small business is $2,000, this budget will
remain the same even if your sales personnel break
sales records.
 Lack of Budget Mobility:
The strength of a static budget is also its greatest
weakness. The lack of mobility in your budget lines
means you won't have the ability to allocate
resources to prop up under-performing areas of
your business, provide additional capital in the
event of equipment failure or seize a new market
opportunity.
 A Flexible Budget is one which is designed to
change, according to the level actually achieved.
The budgeted figures can be changed according to
the changing conditions.
Hence, a Flexible Budget is just the opposite of a
fixed budget. Thus, it is more elastic, practical and
useful in the real life. These budgets are prepared
for the purpose of cost control.
 Comparing the Numbers:
A flexible budget allows you as a business owner to
compare how your company's actual sales figures
stack up against expected sales figures.
For example, a flexible budget for a restaurant may
have performance expectation figures based on 100
guests, 200 guests and 300 guests served in a
night.
 Dependence on Hindsight:
Your small business cannot prepare a flexible
budget until the end of a financial quarter.
As such, a flexible budget depends on hindsight to
adjust your company's financial expectations and
can do nothing to help you adjust the performance
or sales of the quarter that just passed.
 There are three methods of preparing a flexible
budget:

1. Tabular Method or Multi-Activity Method.

2. Charting Method.

3. Formula Method or Ratio Method.

 Zero based budgeting in management accounting
involves preparing the budget from the scratch with
a zero-base. It involves re-evaluating every line item
of cash flow statement and justifying all the
expenditure that is to be incurred by the
department.
 Accuracy

Reduction in
Efficiency redundant
activities

Coordination
Budget inflation and
Communication
 Time-
Consuming

High
Lack of
Manpower
Expertise
Requirement
 According to the National Institute of Bank
Management, Mumbai, the PB is the process of
analyzing, identifying, simplifying, and crystallizing
specific performance objectives of a job to be
completed over a period, in the framework of the
organizational objectives, the purpose and
objectives of the job.