MOD003319 Business Finance Anglia Ruskin University

PART 1

1. Budget can be defined as written financial document which is prepared by the companies and organisations to make an estimate of expenses and income and comparing it with the actual results. A business budget includes managerial plans and policies for achieving the goals and objectives of the organisation (Abernathy, Beyer and Rapley, 2014). There are different types of budgets that are prepared in the organisations such as master budget, fixed budgets, flexible budgets, sales budget, production budget etc. There are various purposes for preparing business budgets: a) Budgeting helps in improving the managerial efficiency. b) It brings competitive strengths among employees. c) budgeting helps in controlling the cost. d) It helps in the reduction of cost. e) budgets set the standards for achieving the targets. f) budgeting also assists the companies in planning, controlling, coordination, performance evaluation etc.

Budgeting processes:

There are various budgeting processes that the company is required to follow in the preparation of budgets:

1.) Formulating business policies: Budgeting process requires the formulation of business policies such as:

Purchase Policy: Purchasing policy is the formal process of purchasing goods and services as required by the employees of the organisation.

Production policy: Production policy implies using the raw material which are most economical and of high quality and low cost. It implies the guidelines for the process of production such as quality, durability of the produced product (Buckland and Davis, 2016).

Inventory/ logistics policy: Inventory or logistics policy defines that how the inventory should be managed such as proper management of perishable products. Maintaining the amount of inventory and ensuring that too much working capital is not stuck in the inventories.

Sales policy: The sales policy of the company defines the amount of goods and services to be sold in a given amount of time such as quarterly sales, half yearly sales, annual sales.

Finance policy: finance policy of company defines the proper supervision, regulation and oversight of the financial and payments system. Finance policy of the company ensure that there is stability in the availability of finance, market efficiency etc.

2.) Drafting budget forecasts: Budgeting process requires drafting of budget forecasts:

Sales forecasts: Sales forecasting means estimating the future sales of the company. A sales forecast which are accurate helps the business in estimating the raw material required in production and various other factors which helps in the effective functioning of business.

Purchase forecasts: purchase forecasts helps the business in estimating the raw material requirement for the production of goods and services. Production forecasts helps in the proper production of goods by ensuring that there is ample of raw material is available and there is no shortage of the material.

Capital expenditure/ Investment forecasts: The capital expenditure forecasts ensure that the company have enough capital for carrying the activities of the business in an efficient manner and investment forecasts implies the forecast investment activities of the organisation (Siebels and zu Knyphausen‐Aufseß, 2012).

3.)Budgeting alternative available plans and choosing the best among them
4.)Coordinating the budgets of different departments.
5.)Getting the approval of master budget in the annual general meetings by shareholders or owners of the companies.

2. Budget is a financial or accounting plan for a period to estimate the cost of different expenditures that are to be incurred in the activities of business. A Cost budget is a financial plan to find out the amount of expenses that are to be incurred in the future period for which the budget is prepared.

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