Study Principles of Accounts notes on Budgeting for Secondary. Useful for revision, homework, and exam preparation in Zimbabwe.
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This is the Principles of Accounts notes. It is a free notes for revision.
BUDGET
Budgets are future plans of a business expressed in monetary or financial terms.
PURPOSE OF BUDGETING
1. Planning
2. Resource allocation
3. Setting targets to be achieved
4. Co-ordination
5. Monitoring and control
6. Modifying (it occurs when the budgeted plans have not been achieved. You modify any activity i.e. causing any adverse or negative variance.
LIMITATIONS OF BUDGETING
1. It is based on estimations and predictions which might go wrong as future is always uncertain.
2. It is time - consuming.
3. If the budgets are made in a wrong manner due to any reason then serious problems can occur as far as the resource allocation, co - ordination and montiroing is concerned.
4. Budgets are restricting in nature.
5. Sometimes demotivating for the workers.
- creativity is limited
- too high targets
- too low targets - workers can't achieve full potential
HOW TO MAKE BUDGETS
1. An environmental analysis revolving around organizational objectives is conducted and then we set new organization objectives.
2. Finding out the key factors that influence the budget.
- output and sales is the key factor
3. Departmental or functional budgets are made. (cash budget, marketing budget, research and development budget, administrative budgets) etc. each department makes its own.
4. $\quad \mathrm{Co}$ - ordination amongst the departments through meeting
5. Preparation of the master budget (name, given collectively to the projected profit and loss account and balance sheet).
WAYS TO SET BUDGETS
1. Incremental budgeting.
2. Zero-based budgeting.
Incremental is just justifying changes in the last year's budget.
Zero - based is justifying budgets right from the scratch.
TYPES OF BUDGETS
1. Fixed Budgets - changes in output level are not incorporated.
2. Flexible Budgets - changes are included giving greater accuracy.