Question

Why does the analysis of the previous fiscal budget performance provide the necessary data for establishing a future budget and what pertinent information could the prior year budget provide?

Answer 1

Budget is presented for that financial year . The budget creates projections by adding assumptions to the current data that we have. So we use last year budget as the starting point and anlayze basing on that data provided in that budget to either increase or decrease the allocation of costs.

In previous year budget it shows all the operations and allocations that are done for any specific functioning of a certain activity. Thus after analyzing previous year data and the new market conditions of any specific activity in the new budget either we increase or decrease the allocation of that value in this budget. From using previous year budget we can also assume the increase or decrease of activities and uses in the future.

Some times using previous year budget we may even remove some products or activties as there is no need of those p-articular products or activties in this year budget.

So Present budget is always calculated by using previous year budget.