Question

Please read the materials for week four and discuss the following topics throughout the week:

Continuous budgeting

Two major types of budgeting

The use of computers in budgeting

Answer 1

(1).

Continuous Budgeting

It is a process of -

- Preparing budgets for future periods;

- Revising them during current periods; and

- Adjusting them at the end of the period.

Reason for Preparing, Revising and Adjusting the budgets - To reduce element of uncertainity in budgeting.

Example - Most companies prepare budgets on a monthly, quarterly or annual basis, but many companies prepare WEEKLY budgets to track sales and shipments. These weekly budgets are used in current period to set financial and performance goals and when current period is over, budgeting process begins again by creating a new plan for next accounting period.

It is also known as Perpetual Budget or Rolling Budget.

(2).

Two Major Types of Budgeting are FIXED BUDGET and FLEXIBLE BUDGET-

FIXED BUDGET -

A fixed budget is one prepared in advance of the relevant budget period which is not changed or amended as the budget period progresses.

This budget represents a periodic approach to budgeting, since a new budget is prepared towards the end of the budget period for the subsequent budget period. In this way, an organisation may set a new budget on an annual basis.

A fixed budget is likely to be useful in circumstances where the organisational environment is relatively stable and can be predicted with a reasonable degree of certainty.

FLEXIBLE BUDGET -

A flexible budget is a budget which, by recognising different cost behaviour patterns, is designed to change as volumes of output change.

(3).

The use of computers in budgeting -

Information technology is helpful for companies that are considering financial transactions. Computer systems calculate and display the interest and principal of a loan, and estimate the returns on investment when the company borrows money to expand its operations. Computer system records all transfers, which simplifies bookkeeping.