Types of Budget and Budgeting Process - Assignment Example

The paper "Types of Budget and Budgeting Process" is a great example of a finance and accounting assignment. A cash budget is important in planning for effective use of cash. It identifies cash surplus or deficits at the chosen time and ensures that the company plans for the deficit. The cash budget predicts the future requirements of finance, the time as well as the amount in advance.

Useful raising the cash

Hence aids in planning for raising the cash in a very profitable investment alternative at justifiable le terms and expense.

Controlling Cash Expenditure

The cash budget acts as a controlling tool. The cost of many divisions in the company might be managed in order to not exceed the budget limits

Testing the Influence of proposed Expansion Programme

 The cash budget predicts the cash inflows from an anticipated growth or venture alternative as well as confirm the impact on the cash situation of the company.

Limitation of the budget

• The budget provides just estimates leading to inaccurate measurement.
• Over budgeting. Minor cost is worked out comprehensively which will not permit managers to delegate
• The budget might be a tool for hiding inefficiency. Pointless boost of some cost or omitting important items that are common in practice intentionally.
• The faster outcome is hard to be attained since its budget is prepared for a year.
• There is inflexibility, the data outline is not the final figures. Since price changes frequently, the approximate outline in the budget might turn to be absolute this might not provide for flexibility.

Question two; types of budget and budgeting process

• Cash Flow Budget
• This kind of a budget examine the cash inflow on a daily basis, it forecast the company’s capacity to take in more cash unlike paying out for the cost., managers will supervise cash flow budget to identifies shortfall in cost and sales, team when funding might be required to cover the overhead cost. The cash flow budget is the recommended production cycle and inventory level in order to ensure that the company’s assets exist for activities.
• Financial Budget
• This budget outline the manner to which busies acknowledge and spend cash on corporate scale inclusive of revenue from the core business and revenue from capital cost. Managing the nun current assets depict a substantial effect on the financial health of a business, specifically through peak and trough of day to day business. The top-level management uses the financial budget in leveraging funding as well as the value of the company for mergers.
• Static Budget
• This budget entails the constituent in which cost remains unchanged with a variance to sales levels. Overhead cost depicts one kind of fixed budget, but the budget is not limited to custom overhead costs. Some divides might have a static amount of cash provided for a budget to spend and it is up to managers to ensure that the amount is actually spent devoid of being over-budgeted. This situation exists commonly in public and nonprofit making organization in which the organization is financed chiefly by grants.

Question three; Master Budget

This is a detailed forecast of how business anticipates conducting entire of its aspect of business for a certain period, normally for a year. The master budget provides a summary of activities in such a way as a cash budget, budgeted income statement and budgeted statement of financial potions.