DIFFERENT TYEPES OF BUDGETS AND PURPOSE

OF CLASSIFYING BUDGETS IN DIFFERENT TYPE

ORGANIZATIONAL VISIT TO ERAVUR URBAN COUNCIL

OUR TEAM MEMBERS

GROUP NO - 05

NO NAMES REGISTRATION NO01) M.B.M. INFAZ EU/IS/2011/MS/11202) R.M.I.P. RATHNAYAKA EU/IS/2011/MS/1103) G.W.K.P.S. KALUPAHANA EU/IS/2011/MS/1204) B.D. GAYAN EU/IS/2011/MS/4105) S.L.M. THASREEK EU/IS/2011/MS/6206) A.A.C. KUMARI EU/IS/2011/MS/6307) C. CHANTRAMATHAN EU/IS/2011/MS/8908) A. SUJEEKARAN EU/IS/2011/MS/9009) F.M. RUSHAN EU/IS/2011/MS/11310) E.Y.N. MUHANTHIRAM EU/IS/2011/MS/114

 

1. Introduction to Budget.2. Classification of Budgeting (Different Types of Budgeting and Purpose,

Pros & Cons of Preparing Different Types). According to Functions

Sales Budget Production Budgeting Cost of Production Budget R&D Budget Cash Budget Master Budget

According to Flexibility Fixed Budget Flexible Budget

Contents..

According to Time Long Term Budget Short Term Budget

According to How the Budget is Prepared Zero Based Budgeting Incremental Budgeting Imposed Budgeting Participatory Budgeting Rolling Budget

3. Implication of Different Types of Budget & budgeting process in Eravur Urban Council.

The Civic Budget Concept. The Initiative of Eravur Urban council Participatory Budgeting The Pradeshiya Sabha/Urban Council Budget Cycle

 4. Conclusion.

Cont…

INTRODUCTION TO BUDGET

 

Definition: A budget is a set of interlinked plans

that quantitatively describe an entity's projected future operations. A budget is used as a yardstick against which to measure actual operating results, for the allocation of funding, and as a plan for future operations.

CLASSIFICATION OF BUDGETING

Types of Budgets:

There are many types of budgets. They may be classified into several basic types. Most organizations develop and make use of three different types of budgets: operating budgets, capital expenditures budgets, master budget, and financial budgets. But types of budget may vary according to classification criteria used.

What is the purpose of classifying the budget in different types?

Budget classification is one of the fundamental building blocks of a sound budget management system, as it determines the manner in which the budget is recorded, presented and reported, and as such has a direct impact on the transparency and coherence of the budget.A budget classification system provides a normative framework for both policy decision making and accountability. Classifying expenditures and revenues correctly is important for

Policy formulation and performance analysis. Allocating resources efficiently among sectors.

Ensuring compliance with the budgetary resources approved by the top-management.

Day-to-day administration of the budget.  Once established on a sound basis, a classification scheme should not be substantially changed unless there are strong reasons; a stable classification facilitates both the analysis of trends in organizational policy over time and interdepartmental and organizational comparisons.

Cont…

Classification according to Functions

Sales Budget Production BudgetingCost of Production BudgetR&D BudgetCash BudgetMaster Budget

Sales Budget

A sales budget is a plan of a business' sales outlook based on the number of units it expects to produce within a specified budget period.

Production Budgeting

Production budget is the component of the operating budget that determines the number of units to be produced to meet sales and ending inventory needs.

Required Production = Expected Sales + Expected Ending Inventory – Beginning Inventory

Cost of Production Budget

A manufacturing budget or cost of production budget is a set of three budgets that estimate the cost of direct materials, direct labour, and overhead for the number of units predicted to be produced in the production budget.

Research & Development Budget

R&D budget is a tool for planning and controlling the research & development cost. This budget helps in coordinating with company’s other plans & projects.

Cash Budget

A cash budget is an estimation of a person's or a company's cash inputs and outputs over a specific period of time.

Master Budget

A master budget is an expensive business strategy that documents expected future sales, productions levels, purchases, future expenses incurred, capital investments, and even loads to be acquired and repaid. In other words, the master budget includes all other financial budgets as wells as a budgeted income statement and balance sheet.

According to Flexibility

Fixed BudgetFlexible Budget

Fixed Budget

A fixed budget is a budget that does not change or flex when sales or some other activity increases or decreases. A fixed budget is also referred to as a static budget.

Flexible Budget

A flexible budget is a budget that adjusts or flexes for changes in the volume of activity. The flexible budget is more sophisticated and useful than a static budget, which remains at one amount regardless of the volume of activity

According to Time

Long Term BudgetShort Term Budget

Long Term Budget

They are concerned with planning the operations of a firm over a perspective of five to ten years. They are usually in the form of physical quantities. In preparing long term budget, market trend, changes in demographics, national income, etc. play important role.

Short Term Budget

They are usually for a period of a year or two and are in the form of production plan in monetary terms. The period should coincide with financial accounting period to facilitate evaluation of financial statement.

Classification According to How the Budget is Prepared?

Zero Based Budgeting. Incremental Budgeting. Imposed Budgeting.Participatory Budgeting.Rolling Budgeting.

Zero Based Budgeting

Zero-based budgeting is an approach to planning and decision-making that reverses the working process of traditional budgeting.

A zero-base budget requires managers to justify all of their budgeted expenditures, rather than the more common approach of only requiring justification for incremental changes to the budget or the actual results from the preceding year. Thus, a manager is theoretically assumed to have an expenditure base line of zero (hence the name of the budgeting method).

Incremental Budgeting

An incremental budget is a budget prepared using a previous period's budget or actual performance as a basis with incremental amounts added for the new budget period.

o The allocation of resources is based upon allocations from the previous period.

o This approach is not recommended as it fails to take into account changing circumstances

o Moreover it encourages "spending up to the budget" to ensure a reasonable allocation in the next period. It leads to a "spend it or lose" mentality.

Imposed Budgeting

A budget developed by top managementwith little or no input from operating personnel; operating personnel are then informed of the budget objectives and constraints.

Participatory Budgeting

Participatory budgeting (PB) is a different way to manage public money, and to engage people in government. It is a democratic process in which community members directly decide how to spend part of a public budget. It enables taxpayers to work with government to make the budget decisions that affect their lives.

Rolling Budgeting

A rolling budget is also known as a continuous budget, a perpetual budget, or a rolling horizon budget. We will use the following example to explain the meaning of a rolling budget

IMPLICATION OF DIFFERENT TYPES OF BUDGET & BUDGETING PROCESS IN ERAVUR URBAN COUNCIL

A brief about Eravur Urban Council

Eravur Urban council (EUC) is ranked in 3rd place among other urban councils island wide.

The UC is comprised of 16 administrative GN divisions. The majority of the population is Muslims. The division has a population of

38,343. The highest population exists at Michnagar GN division and the lowest is at Iyankerni GN division.

Agriculture, business and fishing are the main economy of the people in the division.

Introduction to Local Government Budget. There are three organizations who prepare

independently their own budget in Sri Lanka. National Government, Provincial Council and Local Government. Eravur Urban Council’s budget fall into third category.

The budget is an essential tool for acknowledging the needs of people living in the urban council.

The important factor is that the Local Government Budget cannot be deficit one. It should always tally the revenue with the expenditure

The Budgeting Process The budgeting process commences in the month of April

prior to the next year’s budget preparation. Local government budget is prepared initially by

anticipating the total revenue to be earned in the next year. Then they will estimate expected expenditure for the period.

All the urban council member and the representatives of general public will participate in budget debate prior to budget approval.

If the budget is approved by the Provincial Council, then it would be implemented.

Participatory Budgeting and Budgeting process of EUC

As we discussed earlier, the concept of participatory budgeting or imposed budgeting is practiced in the process of preparing the Eravur Urban Council Budget.

That is every personnel and general public ideas are taken in to consideration and budget is prepared.

Once it is prepared, then it will be sent to provincial council for approval.

 Zero Based Budgeting and Budgeting process of EUC.

They use the concept of zero based budgeting. The budget committee evaluate their every

income sources using Revenue Inspectors (RI) and corresponding Expenses from the beginning without adding a certain percentage to its old budget.

Otherwise the whole budget prepared for next year would end up in failure when they fails to meet budgeted revenue and expenditure.

Urban Council Budget Cycle