A budget is a financial plan for future costs and revenues over a specific period of time. Budgets have several purposes, including comparing planned costs to actual costs, controlling costs, planning production levels, and comparing performance over time. Operating budgets include sales, production, materials usage, and materials purchase budgets. Principal budgets include cash, master, and flexible budgets. A cash budget forecasts receipts and payments on a weekly or monthly basis. A master budget combines all subsidiary budgets into a projected income statement and balance sheet. A flexible budget allows comparisons of actual performance to the budget by adjusting for different activity levels and separating fixed and variable costs.

1. Budgets

2. What is a Budget ?
A budget is a financial plan of future costs and
revenues for a specific period in the future.

3. What are the purposes of Budgeting ?
 To compare budgeted costs with actual costs at the
same level of activity
 To help in controlling costs
 To plan product levels
 To compare like with like

4. Operating /Subsidiary Budgets
Sales Budget = Budgeted Unit sales X
Budgeted Selling Price
Production Budget = Budgeted Sales + Budgeted
Closing Stock – Budgeted Opening Stock
Material Usage Budget = Production Units X Units of
Different Materials Required per Product
Materials Purchase Budget = Materials Usage Budget
+ Closing Stock of Materials – Opening Stock of
Materials

5. Principal Budgets
1. Cash Budget
2. Master Budget
3. Flexible Budget (Higher Level only)

6. Principal Budgets
Cash Budget
*prepared on weekly/monthly basis to allow
management deal with shortages or surpluses.
*show the opening cash position + inflows – outflows =
closing cash

7. Cash Budget
• Only actual receipts and payments are included
• Only when actually received and paid, not due
• Depreciation is always excluded
• Credit sales and purchases at the end of the period
are excluded
• Changes in stock level will affect cash budgets
• The closing balance at the end of the period one is
equal to the opening balance of period two.

8. Principal Budgets
Master Budget
*Includes all subsidiary budgets
*Consists of budgeted profit and loss account and
budgeted balance sheet
*If manufacturing firm a budgeted manufacturing
account and budgeted trading account will be also
prepared

9. Principal Budgets
Flexible Budgets ( Higher Level )
*adjusting the original budget to the actual level of
activity so that comparisons can be made
*separate costs into fixed costs and variable costs
using the high low method

10. Exam Tips
 Order you Prepare Budgets
sales, production, materials usage , material
purchases
Can be asked in 3 parts
 A schedule of receipts
 A schedule of payments
 A cash budget

11. Budgeting Exam Paper Question 9
Higher 2012 2011 2010 2009 2008 2007 2006 2005 2004
Level
Cash 1 1 1 1 1
Budget
Flexible 1
Budget
Production 1 1 1
Budget
Ordinary 2012 2011 2010 2009 2008 2007 2006 2005
Level
Cash 1 1 1 1
Budget
Flexible
Budget
Production 1 1 1 1
Budget