Budget preparation

Prof. GURU PRASAD

FACULTY MEMBER
INC GUNTUR
pgp4149@gmail.com
 Budget preparation

• Characteristics/features of budget
 It estimates the profit potential of the
enterprise
 It always express in monetary terms
 The period is usually one year
 The budget is a management commitment to
accept the responsibility accomplishing the
stated objectives
 The budget normally approved by top
management
 The budget may be changed according to
circumstances
 The budget will compared with actual
performance and variances or analyzed and
explained
 The strategic planning and
budgeting
 Both involve planning
 The types of planning activities
 Budget is for one year and strategic
to 3-5 year
 Strategic planning proceeds
budgeting and budgeting is done on
the basis of strategic plan
 Product lines and programs structure
strategic plan, whereas budgeting
structured by responsibility centers.
Differences between forecasting and
budgeting
 Budget is a management plan whereas forecast
simply prediction about the future.
 Budget always states in monetary terms
whereas the forecast may be stated monetary
and non-monetary terms.
 Budget is for a period of 1 year but forecast for
any period.
 Budget is a commitment but forecasting is not.
 Higher authorities approve budget but forecast
does not.
 Forecast for not analysis but budget is for
analysis, explanation & comparison.
 Forecasting is a planning activities but
budgeting is planning and controlling activities.

 Purpose of budgets
 To fine-tune the strategic plan
 To coordinate the activities of several
parts of the organization
 To assign the responsibility to managers
 To authorize the amounts they are
permitted to spent
 To inform the managers about the expect
performance
 To obtain a commitment from a managers
for Evaluating their actual performance
 Types of budget

 Operating budgets
 Capital budgets
 Budgeted balance sheet
 Budgeted cast flow statement
 Management by objective (MBO)
 Operating budget

 It is prepared for the organization

as a whole & for each business unit
 It is classified by responsibility
centers
 Prepared for one year divided into
quarter, month task Control.,
 It reconcile to strategic plan
 Contents of operating budget

 Revenue budget
 Production cost budget /cost of sales
budget
 Marketing expense budget
 Logistics expense budget
 General and administrative budget
 Research & development budget
 Taxes budget
 Net income budget
Functions of budget department

 It publishes the procedures & forms for the

preparation of budget.
 It coordinates & publishes the assumptions
about the economy for the preparation of
budget
 It provides help & assistance in preparation of
budget.
 It analyzes the proposed budget & makes
recommendations
 It administers the process of making and
revising the budget
 It analyzes the reported performance against
budget, interprets the results & prepares
summary report to senior manager
 Budget committee

The budget committee consists

 CEO
 CFO
 Chief operating officials
 Members of senior Management
 Board of directors
 Functions of the budget
committee
 It reviews and either approves or
adjusts each of the budgets submitted
by all the departments or units of the
organization.
 It approves measure budget revisions
made during the year.
 Budget preparation process

 Budget dep’t
 Set p a budge committee
 Issue guidelines
 Issue of initial budget proposal
 Negotiation
 Approval
 Revision
 Types of Budgets
 On the basis of Participation
 Top down
 Bottom up

On the basis of reference

• Zero based

• Incremental
 Target Difficulties
• Easier targets

• Impossible

Senior Management Involvement