Q1. Explain the term 'budget' ? Ans :- A budget is an estimation of the revenue and expenses over a specified future period of time and is complied and re-evaluated on a periodic basis. A surplus budget means profits are anticipated, while a balanced budget means that revenues are expected to equal expenses. A deficit budget means expenses will exceed revenue.
Types of Budgets
1. Sales Budget : Sales budget is essentially a forecast of sales to be achieved during a specified period in future. The sales Manager is directly responsible for the preparation and execution of this budget. Sales budget shows the break up of total sales productwise, territorywise and monthwise.
2. Production Budget : Production budget contains an estimate of the total volume of production productwise and week or monthwise and a forecast of the closing inventory of finished product.
3. Purchase Budget : The purchase budget contains details about the quantity and quality of various things which the firm needs to purchase during the coming year.
4. Cash Budget : This budget is a summary statement of the firm's expected inflows and outflows of cash over a future time period. It involves a projection of future cash receipts and cash payments over different time intervals.
5. Master Budget : The Institute of Cost Management Accountants, England, has defined it as "the summary budget, incorporating its component functional budgets which is finally approved, adopted and employed. "Thus, the master budget is a summarised form of all the budgets of a firm.