Five Types Of Budgeting

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Budgets help to keep track of businesses and managing resources. Companies use budgeting to facilitate planning and control within the business in order for them to manage the financial aspects of their business and plan for new product expansion in the future. Businesses use a variety of budgets to measure their assets and revenues. There are five types of budgeting which are commonly used in businesses: master budget, operating budget, cash flow budget, financial budget and static budget. 1. Master budget Master budget is the aggregation of company’s interrelated budgets made by different departments to show and explain the full picture of company’s financial activity. It is the summary of all the functional budgets available in one report.…show more content…
It does not include capital income and expenditures. The reason why the operating budgets have to be completed in advance of the accounting period is because they need to estimate expenses and revenues to calculate how much income a company expects to make and the expected expenses in the short term period. The main focus on the operating budget is facilitating the income. Operating budgets must account for factors such as sales, production, labor costs, materials costs, overhead, manufacturing costs, and administrative expenses. Usually the operating budgets are made on a weekly, monthly, or yearly basis depends on the company. The comparison of report is usually done by the company’s manager to make sure the company is not overspending on…show more content…
In another word, static budget will remain the same even if the volume changes happen. For example, if a company’s master budget is static, sales commission expenses is RM20,000 per year will still remain at RM20,000 even if the actual sales during the year are RM100,000 or RM200,000. The static budget is very useful in company where there are high predictable sales and expenses. The static budget is usually used to compare between the actual sales which then used to evaluate the sales performances. However, static budget is not effective for evaluating the performance of cost

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