Question

Explain different types of budgets and discuss the importance, for an organisation, of preparing budgets.

Answer 1

Different Type of Budgets are as follows -

1. Master Budget

2. Operating Budget

3. Cash Flow Budget

4. Financial Budget

5. Static Budget

1. Master Budget -

Master Budget through company point of view is very important to understand the budget for the product they are introducing into the market. In preparation of Master Budget there are lots of factors such as Sales Units, Closing Stock, Production, Direct Material, Direct Labour, Manufactuing overheads and every factors that affect the sales unit to understand the profit on the amount in the product.

2. Operating Budget -

Operating Budget determines the operating budget which includes forecast and analysis of the income for the specified period of time.

This includes the all the operating activities of the company that include in the product.This budgets are generally created on a monthly, weekly or yearly basis.

3. Cash Flow Budget -

This are also very important from the company point of view to manage the flow of cash that inflow to the company and their future projections.

How much inflow they expect and from that inflow whether to invest in the assets or to pay long term loan pay dividends and more activities managers determines through the budget.

4. Financial Budget -

In thhis budget company manages all its financial activities of the business. Inclduing Assets, income and expenses, Cash Flows. It shows the income earned and spending of the organisation in a financial year that helps the managers and owners of the company to manage its finance.

5. Static Budget -

Thi budget is fixed budget. As the name it does not affect or change by variable factors like Sales volume.