Is a process of planning
activities stated in
quantitative terms, usually
in units and pesos in a
given period of time.
Objectives of Budgeting
It compels or forces managers to plan.
It provides information that can be used to
improve decision making functions.
It helps to set a benchmark that can be used
for performance evaluation it improves
communication and coordination.
Operating Budget – is the detailed schedule for
each item in the operation of the business.
Financial Budget – is composed of the budgeted
balance sheet, cash budget, and in some cases
includes capital acquisition budget.
Sales budget is a detailed schedule showing the
expected sales for the coming year.
Production budget would show the sufficient
goods to be produced for the period, and the
required beginning and ending inventories of
Purchase budget will show the direct materials
purchases for manufacturing and goods for sale for
Cost of Goods Sold budget shows the total number
of units sold and its average unit prices.
Operating cost shows all the expenses for the
period. This includes direct labor and
manufacturing overhead budgets for a
Budgeted Income Statement will be used as the
basis for evaluating the performance of the
company by comparing the budget and the actual
results at the end of each year.
Budgeted balance sheet is a prepared
beginning with the current balance sheet and
adjusted by the amounts from the operating
Cash budget will outline the beginning cash
balance and adjusted by the total cash receipts and
cash disbursements during the year whether from
operating, investing or financing activities of the
Major Benefits of Budgeting
Planning. Budgeting compels managers to think
ahead by formalizing their responsibilities in
Evaluating performance. Budgeting provides
definite expectations that serve as the best
framework for judging subsequent performance.
Coordinating and Control. Budgeting aids
managers in coordinating their efforts, so that the
objectives of the organization as a whole match the
objectives of its parts.
Motivation and positive behavior. People
who are involved in the preparation of the budget
must develop a sense of commitments to the
achievement of the budget they made.