Explain what is Capital Budget,Operating Budget,Summary Budget & Master Budget

November 12th, 2007 Comments off
Share |

Budgets can be broadly classified into two categories:

  • Capital Budgets
  • Operating Budgets

WHAT IS Capital Budget:

  • is concerned with the provision of resources for the long-term running of a business for example, the Capital Expenditure Budget

WHAT IS Operating Budget:

  • Is concerned with the DAY-TO-DAY operating activities of the business.
  • Usually prepared for a normal operating cycle of one year.
  • Common operating budgets includes the following:
  • Sales Budget
  • Production Budget
  • Machine Utilization Budget
  • Material Budget
  • Labor Budget
  • Overhead Budget- the Production Overhead Budget, Administration Budget, Selling Overhead Budget and Distribution Overhead Budget
  • Research and Development (R&D) Budget
  • Working Capital Budgets which includes the Stock Budge, Debtors Budget and Creditor Budget
  • Cash Budget

WHAT IS The Summary Budget:-

Summary Budget as it being coined is merely a summary of all the aforesaid budgets. The ultimate output of the Summary Budget will show:

  1. Budgeted Income Statement
  2. Budgeted Balance Sheet

WHAT IS A Master Budget:-

Once the summary budget is prepared, it is a DRAFT Master Budget. This draft master budget is submitted to the budget committee for approval.

Next when the budget committee has thoroughly review the draft master budget, it is then submitted to the Board Of Directors once again for the ultimate approval. Upon the approval from the Board Of Directors, the draft master budget then becomes the Master Budget. The budget is now an order from the boar and the manager responsible must see to it that it is implemented as effectively as possible.

(See main steps when preparing the master budget)

Comments are closed now.

Financial Accounting

 
 

Advertise Here | Brain Teasers/Puzzles | Greeting Cards | Inspirational Quotes | Jokes/Humor | Useful Links | Motivational Stories | Resource | Shopping | Share/Express Your Views | Testimonials | Universities/Colleges | Words of Wisdom from Religions | FREE POSTING OF ACCOUNTING & FINANCE JOBS VACANCY|