Types of Budgets
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Budgeting Basics
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Master Budget
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Overall financial and operating plan
Prepared annually of quarterly
A number of sub budgets tied together
A Summary
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Operating and Financial Budgets
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• Deals with costs of merchandise or services
produced
• Examines expected assets, liabilities, and
stockholder’s equity of business
• Gives picture of company’s financial health
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Cash Budget
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• For cash planning and control
• Expected cash inflow and outflow for designated
period
• Consists of 4 major sections
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– Receipts: beginning cash balance, cash collections from
customers, and other receipts
– Disbursement: comprised of all cash payments
– Cash surplus or deficit: difference between cash
receipts and cash payments
– Financing: detailed account of the borrowings and
repayments expected during period
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Fixed Budget
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• Is budgeted figures at the expected capacity
level
• Used when companies are stable
• Lacks flexibility to adjust to unpredictable
changes
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Expense Budgets
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• Most commonly used
• Very versatile
• Four steps in preparing expense budgets
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– Determine relevant range over which activity is expected
– Analyze costs that will be incurred over relevant range to
determine cost behavior patterns (variable, fixed, mixed)
– Separate costs by behavior
– Using formula for variable portion of costs, prepare budget
showing what costs will be incurred at various points
throughout relevant range
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Capital Expenditure Budget
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• A listing of long term projects to be
undertaken
• Typically three to ten years
• Classified by objective
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Expansion/enhancement
Cost reduction/replacement
Development of new product
Health and safety expenditures
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Strategic Budgets
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• Integrates strategic planning and budgeting
control
• Effective under conditions of uncertainty
and instability
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Target Budget
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• Major expenditures are matched to
company goals
• Strict justification for large dollar and
special project requests
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Continuous Budget
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• Revised on regular basis
• Also known as rolling budget
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– Company will extend budget for another month
or quarter as new data on current period ends
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