Budgeting

"Success is the sum of small efforts, repeated.."

- R Collier

LEARNING OBJECTIVES

1. To discuss the relationship between long-term planning and budgeting
2. To discuss the purpose of budgeting
3. To explain stages in the budgeting process
4. To prepare a cash budget
5. To prepare fixed and flexible budget
6. To explain the limitations of budgeting

Long-term Planning and Budgeting

✓ A long-term plan is a statement of the preliminary targets and activities

required by an organization to achieve its strategic plans together with a
broad estimate for each year of the resources required.

✓ Budgeting is concerned with the implementation of the long-term plan for

the year ahead.

✓ Budgets are a clear indication of what is expected to be achieved during the

budget period whereas long-term plans represent the broad direction that
top management intends to follow.

Key Factors of Budgeting

1. Planning annual operations
2. Coordinating the activities of the various parts of the organisation.
3. Communicating plans to various responsibility centres.
4. Motivating managers to strive to achieve organizational goals
5. Controlling activities
6. Evaluating the performance of managers

Budgeting
Process

Ongoing review of budgets

Final acceptance of budgets

Coordination and review of budgets

Negotiations of budget with superiors

Initial preparations of various budgets

Preparations of sales budget

Determining the factor that restricts output

Coomunicating details of budget policy and guidelines

Cash Budget

•A cash budget is prepared to ensure that sufficient cash is available
at all times to meet the level of operations that are outlined in the
various budgets

•The cash budget can be analyzed in monthly, quarterly or weekly

•It is necessary to provide for more than the minimum amount
required to allow some margin of error in planning

•A cash budget can help in terms of :

- cash surplus

- cash deficiencies

•Overall aim – to manage the cash of the firm to attain maximum
cash availability and maximum interest income on any idle funds.

SAMPLE

QUESTION

FEB 2021