Budget : The financial plan for a short period of time: Individual Budgets : Purchases Budget: Production Budget: Sales Budget: Labour Budget: Trade Receivables Budget: Trade Payables Budget: Inventory Budget: Master Budgets: Cash Budget: Budgeted Income Statement : Budgeted Statement of Financial Position: Evaluation of Budgets ( Advantages and Disadvantages of Budget): recognize the effect of limiting factors on the preparation of budgets: prepare a flexed budget statement: entify and explain the causes of differences between actual and flexed budgeted data • make business decisions and recommendations using supporting data • discuss the behavioural aspects of budgeting

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Budgets
Sanjaya Jayasundara
B.Sc.(Finance) Sp.
University of Sri Jayewardenepura,
Investment Advisor,
International School Teacher

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Content
Budgeting and budgetary control
Introduction.
Types of budgets
Master budget
Advantages and disadvantages of budgets
The effect of limiting factors on the preparation of
budgets
Flexed budgets
Make business decisions
Extra readings
Past paper questions.
Model questions.
Summary
Syllabus according to Cambridge
2.2 Budgeting and budgetary control
Candidates should understand the need for and benefits of a budgetary control system to an
organisation.
Candidates should be able to:
• discuss the advantages and disadvantages of a budgetary control system to an
organisation
• prepare the following budgets:
sales, production, purchases, labour, trade receivables, trade payables, cash,
Master budget
• recognise the effect of limiting factors on the preparation of budgets
• prepare a flexed budget statement
• identify and explain the causes of differences between actual and flexed budgeted data
• make business decisions and recommendations using supporting data
• discuss the behavioural aspects of budgeting.

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Introduction
A budget is a financial plan for a defined period, often one year. It may also include planned
sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and
cash flows.
Advantages of a budgetary control system to an organisation
Allows targets to be set
Helps to plan / control the use of resources
Helps with decision-making
Enables regular variance analysis
Identifies limiting factors
Informs all departments of a common goal
Improves communication between managers and departments
Improves co-ordination between departments
Provides clear areas of responsibility
Helps to motivate employees
Disadvantages of a budgetary control system to an organisation
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Types of budgets
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What is budgetary control?
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Past Paper Questions
May/ June 2019 – Variant 32
Did you know?
A flexed budget. is a budget prepared to show the revenues, costs and profits that
should have been expected from the actual level of production and sales

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October/ November 2018 – Variant 32

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October/ November 2018 – Variant 33

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May/ June 2018 – Variant 31/33
Expert tip:
A cash budget might show a negative cash flow at the end of a time period. This is possible
as cash budgets also include bank transactions.

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Extra Readings…
Limitations of Budgetary Control:
 Prediction of Uncertain Future: Budgeting is a process of forecasting and estimation. ...
 Changes of Conditions: Budgets are prepared on the basis of certain prevailing
conditions. Complacence, Difficulty in Coordination, Conflict among Different
Departments:
www.accountingnotes.net › cost-accounting › budgetary-control-meaning-o...
Master Budgets
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February/March 2018 – Variant 32
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October/ November 2017 – Variant 32
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October/ November 2017 – Variant 33
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May / June 2017 – Variant 31/33
May / June 2017 – Variant 32
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October/ November 2016 – Variant 32
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October/ November 2016 – Variant 33
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February/March 2016 – Variant 32

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Now test yourself:
1. Explain the term ‘budget’.
2. Identify five functions of budgeting.
3. Explain the term ‘budgetary control’.
4. Explain the term ‘master budget’.
5. Complete the following sentence:
A master budget draws together individual budgets and is summarized by the
preparation of an …………………………………. Statement and a statement
showing the …………………………………………. Of the business.
6. Complete the following formula for a trade payable budget:
Opening balance of trade payable + ? + ? = Closing balance of trade payables
7. Explain why the preparation of a cash budget is vital to the decision making of any
business.
8. Is depreciation entered in a cash budget? Explain your answer.
9. List three items that might appear in a budgeted income statement but would not
appear in a cash budget.
10. Explain the term ‘principle budget factor’.
11. Identify two principal budget factors that could prevent the desired outcomes for a
business.
12. Explain what is meant by a flexed budget.
All the best children…!
I wish you an enjoyable learning session...!
Sanjaya Jayasundara
Study well and be a good citizen to motherland Sri Lanka…!