Question

What is the process for preparing budgets or other financial plans?

What two forms of budgeting might be used?

Which form of budget allows changes to be made?

Answer 1

Solution:

What is the process for preparing budgets or other financial plans?

Budget: The budget is the plan which intends to figure out what could be the expected operations revenue and expenses of an organization for a certain future period.

The process of preparing a budget is

• Selection of data: We need to select the appropriate data for the revenue or the costs
• Identify the information source and its authenticity
• Based on the accounting rule classify the data
• Perform calculations about cost, revenue etc
• Prepare reports based on the calculations
• Update the budget if there is some change

What two forms of budgeting might be used?

Two forms of budgeting that can be used are - Fixed and flexible budget

Fixed budget

• Does not account for any changes in the future
• It is easy to prepare
• Useful for the business that has no(very low) change in the environment

Flexible budget:  

• It is prepared in such a way that any change in the future environment will be accommodated in the budget
• Useful for the business environment which is changing in nature

Which form of budget allows changes to be made?

Flexible: Flexible budget allows changes to be made if there is a change in the conditions. It is helpful for the organization where conditions are changing rapidly. It allows flexibility and helps managers to get the desired output