Question

What is difference between a regular operating budget and a continuo-us/perpetual budget?

Answer 1

First of all, Budget is an estimate of the various incomes and expenditure of a future period .

It is generally prepared for a fix time period, say a year.

This fixed period budget is known as a regular operating budget. Such budgets are set for a fix period, before the commencement of that particular period. These budgets are not revised once they have been set. Hence, they have a drawback of wrong standards being set , if market conditions in actual have changed as these regular budgets are made using past market trends and conditions.

To overcome this drawback , the concept of continuous/perpetual budget was established. In a continuous budget, the buget is initially set for a smaller duration of time and then it is regulary analysed and set for a further period and this process continues.

This way, the set budgets are very close to the actual figures and thus, the variances are generally controlled and are low.

The definitions of both the budgets are as follows -

Regular operating budget

A detailed projection of all estimated income and expenses based on forecasted sales revenue during a given period (usually one year). It generally consists of several sub-budgets, the most important one being the sales budget, which is prepared first.

Continuous budget

Continuous budgeting is the process of continually adding one more month to the end of a multi-period budget as each month goes by. This approach has the advantage of having someone constantly attend to the budget model and revise budget assumptions for the last incremental period of the budget.