The document defines and explains different types of budgets. It begins by defining a budget as a financial plan that estimates revenues and proposed expenditures. It then discusses operating budgets like expense, revenue, and profit budgets which are used to monitor organizational functions. Expense budgets include engineered and discretionary cost budgets. Financial budgets include capital expenditure, cash, financing, and balance sheet budgets. The document also discusses the budgeting process, roles in budgeting, and zero-base budgeting which requires justifying all budget decisions rather than using the previous year's budget.

1. BUDGET

2. Budget
• FRENCH WORD BOUGETTE
• PURSE

3. Definitions
• TAYLOR – A budget is the master financial plan of the government. it
brings together estimates of anticipated revenue and proposed
expenditure for the budgeted years
• BASTABLE - the budget has come to mean the financial arrangements
of a given period, with the usual implications that they have been
submitted to the legislature for approval
• FINDLAY SHIRRAS - the budget is an annual statement of expenditure
and revenue to meet that expenditure prepared by public authorities
and usually covers at least two fiscal periods-the closing period and
the period to come

4. • Formal quantitative statement of resources allocated for planned
activities over stipulated periods of time ( Stoner , 1995)

5. Why we need budget ?
• Budgets are stated in monetary terms. It can be used as a common
denominator for organizational activities such as hiring, purchasing
equipment
• Budgets can convey information on a key organizational resource
(capital) and on key goal (profit)
• Budgets can establish clear and unambiguous standards of
performance for a set time period – usually a year

6. Role of budgets in a control system
• Control system
1. Monitor organizational functions or projects
2. Ensure specified activity is carried out ( production or sales ) and
specified end result is achieved ( development of new product or
completion of building )

7. Revenue
centers
Expense
centers
Profit
centers
Investment
centers
Outputs Inputs
Outputs
Minus Inputs
Output compared
With assets
Budgeting System for Controlling Functions

8. Responsibility Center
• Any organizational function or unit whose manager is responsible for
all of its activities

9. Revenue Center
• Organizational unit in which outputs measured in monetary terms are
not directly compared to input costs

10. Expense Center
• Commonly, administrative, service, and research department where
inputs are measured in monetary terms, although outputs are not

11. Profit center
• Organizational unit where performance is measured by numerical
differences between revenues and expenditures

12. Investment center
• Organizational unit that not only measures the monetary value of
inputs and outputs, but also compares outputs with assets used in
producing them.

13. Budget process
Managers receive top management’s economic forecasts and sales
and profit objectives for the upcoming year , along with a time table
stating when budgets must be completed
Top down
Budget is imposed by top managers with little or no consultation with
lower level managers
Bottom up
Budgets are prepared , initially , by who implement them

14. Budgeting process
Economic industry projections
Company planning
parameters
Corporate
Goals
Overall
resource
availability
Operation plans
Information on
competition,produts
and markets
Alternative courses of action
Specific resource requirements
TOP DOWN BOTTOM UPVS

15. Role of Budget personnel
• Managers get assistance from the staff of a planning group , formal
budget department and committee
• Budget department
• Budget committee

16. Types of budgets
• Operating budget
Budget indicating the goods and services of the organization expects
to consume in a budget period
• Financial budget
Budget detailing the money expected to be spent during the budget
period and indicating its sources

17. Operating budgets
• Common types of operating budgets parallel 3 of the responsibility
centers such as expense , revenue, and profit
• Expense budgets
1. Engineered cost budgets
2. discretionary cost budgets

18. Engineered cost budget
• Budget describing material and labour costs of each item produced,
including estimated overhead costs.
Eg: An annual budget describes the labour, material and overhead
expenses involved in manufacturing its computer peripherals

19. Discretionary Cost budget
• Budget used for departments in which output cannot be accurately
measured

20. Revenue Budget
• Budget measuring marketing and sales effectiveness by multiplying
the unit price of each product by the predicted sales quantity

21. Profit budget ( Master Budget )
• Budget combining cost and revenue budgets in one unit

22. Financial Budgets
• Capital Expenditure Budget
• Cash Budget
• Financing Budget
• Balance sheet budget

23. Capital expenditure budget
• Budget indicating future investments to be made in buildings,
equipment's, and other physical assets of the organization

24. Cash Budget
• Budget combining estimates for revenues, expenses, and new capital
expenditures

25. Financing budget
• Budget that assures the organization of available funds to meet short
falls of revenues when compared to expenses and that schedules
potential borrowing needs

26. Balance sheet budget ( pro forma balance
sheet )
• Budget combining all other budgets to project how the balance sheet
will look at the end of the budgeting period

27. Zero base budgeting ( ZBB)
• A budgeting approach in which managers use cost benefit analyses to
justify all budget decisions, rather than using the previous year’s
budget as a starting point.

28. References
• James A.F Stoner, & Freeman, R. E. (1995). Management (6th ed.).
New Delhi: Prentice Hall of India Private Limited.
• P. Robins, S., Coulter, M., & Vohra, N. (2009). Management. Pearson.