BUDGET: Budget is a financial estimate of items of income and items of expenditure of an organisation for a specified period of time. This means that for a piece of document to be qualified as a budget it must have the following characteristics:
1. It must be for a period. eg one month, one year etc.
2. It must be stated in monetary terms. =N= , $ etc.
3. It must be for an organisation.No budget is done in a vacuum. Such organisation like govt, church, companies etc.
There are three segments of budget namely income budget, expenditure budget, profit/loss budget. The budget for income and expenditure are the extimates allotted to each item, while profit/loss budget is derived from income and expenditure budget.
When the budgeted income is higher than budgeted expenditure, the document is referred to as surplus budget. If the budgeted income is lower than budgeted expenditure it is a deficit budget. I will not border you with what happens with the surplus budget or how deficit budget is financed. Call the phone number at the end of the paper for a detailed explanation on that.
TYPES OF BUDGETS.
There are different types of budgets. Sales budget, Purchases budget, Cash budget, Capital expenditure budget, Expense budget etc. Each of these budgets must conform with the characteristics mentioned above.
A budget is a working tool. It provides the direction for the organisation. It can also be used as an appraisal model for the various managers and supervisors in an organisation. Budgets can be used as performance index which can be used to reward excellence and punish mediocrity. In Govt budget is an avenue for spending. But in the private sector budget is for savings.
BUDGET METHODS.
Budgets can be drawn using several methods. There is prevous year method where figures of the prevous year are used as bench mark to develope current year figures. There is zero based budgeting where the current year figures are based on current events. There are other budgeting methods which is not for discussion here. Call the number.
The process of preparing a budget is by no means enormous. There are a lot of inputs associated with budget. These inputs are provided by designated individuals who are saddled with the responsibility of producing the budget. We have a chief budget officer whose duty it is to produce the overall budget. We have budget executives who surply the extimates, and then the chief executive officer who approves the budget. The roles of each of these officers can be explained at another forum.
BUDGETARY CONTROL.
Budgetary control is a measure, process or procedure put in place to evaluate the performance of a budget periodically. This task is sometimes performed by a management accountant who is well trained to do that.
Budgetary control entails comparing each budgeted item with the actual occurence in a period. The differnce between budget and actual is known as variance. If budget exceeds actual, it can be positive or negative depending on the budget segment being evaluated.
Where budgeted income exceeds actual income, this means negative variance. If budgeted income falls below actual, it is positive variance. On the expense side, if budgeted expense is more than actual it is positve avriance. The reverse is negative.
Please note that positive variance can be referred to as favourable variance. Negative variance is unfavourable or adverse variance. The process of deriving variances can be called variance analysis.
To further evaluate budget, ratios can be used. This is called ratio analysis. To get full explanation of this please call the number.
CONCLUTION.
What I have succeeded in doing here is a paraphrase of budget and budgetary control. This will help people to manage thier finances better irrespective of the size of the organisation. This can be a family, school, church, mosque etc. Budget is not meant for big organisations alone.
The above will also help students whether they are studying accounting or not. That is why I employed plain language as much as possible. Read and re read for better understanding. Thank you all.
FOR FURTHER ENQUIRY PLEASE CALL JEROME. 08035316842 OR 08076058841.
