It is very important to prepare the budget for production, sales, material, cash and all the expenditure. A budget helps in both planning and control. It is just a projection defining the anticipated cost, results and allocation of resources. It is a standard for evaluating performance of the business.
Well various types of budgets are prepared in business enterprises such as:
- Master Budget – it represents all the summary budgets, it gives a comprehensive picture of all the activities and the results for the entire organisation. Its approval is required by the top management.
- Functional Budget – A functional or an operating budget describes the program and responsibility of a particular department.It includes:
Sales Budget
Production Budget
Materials Budget
Cash Budget
Labour Budget
Production, Distribution Budget
- Capital and Revenue Budget– Capital expenditure budget gives estimate expenditure on fixed assets like buildings, plants and machinery, furniture etc. on the other hand revenue budget shows estimate of income and expenses on routine operation.
So basically it’s a plan of action design to achieve a specific goal. It is a reflection of the capital outlet, cash flows and sales targets. Therefore preparing budget beforehand will give the clarity of expenses.
