Question

how to assessment of the budget(in detail/step by step)

what is assessment of budget and what kind of the material we need/prepare to start assessment of the budget? balance sheet? income statement? or other financial statement?

Answer 1

Budgetting is the process of creating a plan to spend the money. It is simply balancing your expenses with your income. The budget evaluation refers to the final stage of the budget cycle when there is an assessment of whether the public resources have been used appropriatelu and effectively. While preparing a budget the first step is to take control of the finances, and to periodically evaluate it.

Having a budget in place is important as it allows to have a greater understanding of how much money does the organisation have and plan the expenses accordingly.

Basic elements to be taken into consideration for a good budget (profit and loss items):

1. Income: Need to keep track of the income an organisation makes from time to time, and the sources through which it generates as well. Also shall make a note of both pre and post tax income.

2. Fixed expenses : Fixed expenses are those expenses which tend to incur and you have little control over it. For instance, the mortgage is a fixed expense however Netflix account is not.

3. Flexible expenses : It refers to the list of expenses that might occur additionally but not a necessity though. For instance, a movie ticket or dinner at a restaurant.

4. Unplanned expense and savings : unplanned expenses or emergency expenses like a car breaking down which needs tk be repaired immediately and cannot be postponed.

Budgets can be used ti evaluate the number of units produced or services rendered and the labour hours and material it took for each task. The process involved allocation resources to various compartments within the budget, then going back after the post and comparing with the actual usage and analysing what has gone wrong incase if any.

Monitoring the budget is vital to ensure the financial, operational, and capital plans were developed and approved for implementation as part of the budget processes are being implemented. Budget monitoring is crucial for an organisation to be able to enforce accountability related to spending.

Step wise budget approach :

1. Update the budget assumptions: budgets are generally prepared on certain assumptions. Those could be related to the sales teend, cost trend or enviornmental conditions. Before embarking on the budget, such assumptions need to be reviewed and updated from time to time.

2. Available fund: Adequate attention has to be given to the available funding as the availability of the investable funds will determine the initiationnof the viable projects.

3. Cost structure : The business environment we live in today, is posed with challenges that can completely change its cost structure. Hence, the factors that shall affect the cost structure shall be closely considered. Such factors need to be identified before hand in order to make the budget realistic.

4. Create budget package : Previous standards are updated according to the recent environmental conditions.

5. Obtain revenue forecast: Sales budget is the most crucial out of all. It determines whether the business is generating enough revenue necessarily for its survival.

6. Obtain department budget: The department budget will help to reach a budgeted expenditure department wise with a proper split of expenses.

7. Validate compensation : compensation plans are a significant component of the Budgetting process. Bonuses act as an appraisal method, and hence any bonus plan shall be taken into prior consideration beforehand.

8. Capital budget request: Capital expenditure ensures expansion of the business. It helps the business to avail the opportunities necessarily for business growth.

9. Update budget model: Any changes in the assumptions of the budget model shall be updated and final budget needs to be prepared and reviewed accordingly. A delay in this might lead to confusion.