Budget | Budgeting | Types of Budget

          We all have heard about budget. But many of us fail to understand or have a limited knowledge about budget and types of budget. To in this article let us try to understand meaning of budget, budgeting and types of budgeting.

Budget

          A budget is a blueprint of projected plan of action expressed in physical units for a specific period of time. Budget is a plan as well as control tool.

Budgeting

          Budgeting refers to the formulation of plans for future activity which lay down carefully determine programs and objectives and provide yardstick and also deviation from plan and achievement can be measured.

Types of Budgets

          Budgets can be classified based on

§  On the Basis of Time

§  On the Basis of Function

§  On the Basis of Flexibility

Budgets on the basis of time can be classified into

§  Long Term Budget

§  Short Term Budget

§  Current Budget

Budgets on the basis of Function can be classified into

§  Operating Budget

§  Program Budget

§  Financial Budget

§  Master Budget

Budgets on the basis of Flexibility can be classified into

§  Fixed Budget

§  Flexible Budget

§  Zero Budget

Now let us try to understand in detail about various budgets classified under time, function and flexibility.

§  On the Basis of Time

·        Long Term Budget:

 The budget whose period varies between 5-10 years and depicts the long term goals of a business or a firm is called as Long Term Budget.

·        Short Term Budget:

 The Budget whose period varies between 1-2 years and depicts the short goals of a business or firm is called Short Term Budget.

·        Current Budget:

 The budget whose period generally is 6 months or a week and is related to current position of the firm or business is called as Current Budget.

§  On the Basis of Function

·        Operating Budget :

The budget which is based on the various operational activities of a business or firm is called Operating Budget. The number of budgets depends upon the size of the firm.

·        Program Budget :

A program budget is a budget which consists of revenue and cost of various products that are as major program of business or firm.

·        Financial Budget :

The budget which deals with the Working capital, receivables, payables, financial position and the business operation is called as Financial Budget.

·        Master Budget :

A Master Budget is a budget that integrates the various different functional budgets in it.

§  On the Basis of Flexibility

·        Fixed Budget :

A Flexible Budget refers to a budget which is prepared for a given level of activity. The budget is also prepared before the financial year.

·        Flexibility Budget :

A budget that consists of series of budget for different level of activity and varies with the level of activity is called flexible budget.

·        Zero Budget :

Zero Budget was developed by Peter Byore in 1969. Usually the traditional budgeting was based on the planned budget even subsequently performed and adjustments are made. In this technique where execution are required to start the budget from zero level every year and justify all the expenses of existing programs in comparison with the present and future programs.