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Types of Budgets

Budgeting Basics

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Master Budget

• Overall financial and operating plan

• Prepared annually of quarterly

• A number of sub budgets tied together

• A Summary

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Operating and Financial Budgets

• Deals with costs of merchandise or services produced

• Examines expected assets, liabilities, and stockholder’s equity of business

• Gives picture of company’s financial health

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Cash Budget

• For cash planning and control• Expected cash inflow and outflow for designated

period• Consists of 4 major sections

– Receipts: beginning cash balance, cash collections from customers, and other receipts

– Disbursement: comprised of all cash payments– Cash surplus or deficit: difference between cash

receipts and cash payments– Financing: detailed account of the borrowings and

repayments expected during period

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Fixed Budget

• Is budgeted figures at the expected capacity level

• Used when companies are stable

• Lacks flexibility to adjust to unpredictable changes

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Expense Budgets

• Most commonly used• Very versatile• Four steps in preparing expense budgets

– Determine relevant range over which activity is expected– Analyze costs that will be incurred over relevant range to

determine cost behavior patterns (variable, fixed, mixed)– Separate costs by behavior– Using formula for variable portion of costs, prepare budget

showing what costs will be incurred at various points throughout relevant range

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Capital Expenditure Budget

• A listing of long term projects to be undertaken

• Typically three to ten years• Classified by objective

– Expansion/enhancement– Cost reduction/replacement– Development of new product– Health and safety expenditures

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Strategic Budgets

• Integrates strategic planning and budgeting control

• Effective under conditions of uncertainty and instability

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Target Budget

• Major expenditures are matched to company goals

• Strict justification for large dollar and special project requests

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Continuous Budget

• Revised on regular basis

• Also known as rolling budget– Company will extend budget for another month

or quarter as new data on current period ends