Tuesday, 30 December 2014

What is Budget and How it is prepared?

A budget is just like a plan for your spendings.

To spend, you need money. And even if you have money, you can not spend it in a haphazard manner. You can spend only within your amount that you possess. For this purpose of meeting your expenses within the money you have, you need to plan whatever to spend and whatever to avoid or postpone. So, you need to make a list of all your needs and calculate whether you can meet all them within your available funds.

To understand What is Budget, it is very simple once you realise this. I hope all of you prepare lists before going for your monthly purchases.

This list itself is a kind of budget for you. When preparing the list, you will be aware of your pocket and the share of money you are going to allocate for that particular shopping. So, you will be having a rough idea of the cost or price of each item that you are going to shop. You may not put down the amount on paper. But you will be accessing the total amount that you may require for that purchase. So, you will try to cut down the quantities or omit some items from the list and try to match the total expenditure with your available fund for that shopping. Or, on the other hand, you may increase the fund for that shopping if you do not feel like cutting items. This process is known as budgeting your expenses to your income.

In a wider sense, Budget means preparing a projection of expenses in terms of money value to be met out during a particular period of time or for a particular job or project against available income or expected income during that period.

Preparation of Budgets
A budget can be prepared in a simple form of putting your available income at the top of the list and then listing all your expenses in money value and match the total expenditure with your income. You may save some money or you may match the total expenditure exactly with your income by increasing or decreasing the expenses.

But in case of big businesses and corporate budgets, it may require a lot of exercise. You will have to calculate your income more accurately and also predict all the expenses that you may have to meet out during that period precisely as safely as you can.

You can put your income calculations on one side and expenditure on the other side of your statement or calculate them on two different pages and attach them.

You can prepare the budget process-wise also, if your business deals with different processes and then club them together to know the total impact. The budget papers can resemble your Profit and Loss statement in such cases with deep details of budget projection in attached statements.

Budget can be of many different types.

  • Personal Budgets are prepared for planning one's own expenses for himself and his family.
  • Business or Corporate Budget is prepared for projecting and meeting the company's expenses against their available funds and run them efficiently. 
  • Government Budgets are required for efficient management of government funds in the interests of public and the country.
  • Short term budgets like monthly, yearly or for a particular purpose or job are prepared to meet those particular short term purposes.
  • Long term budgets can be prepared for full lifetime planning of individuals or for long term goals of companies.
  • Revenue Budgets are prepared for planning revenue expenses and incomes.
  •  Capital Budget is prepared for procurement of capital goods and assets like buildings, land, machinery and erection of projects, etc.

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