Describe the following terminologies in relation to preparations of a budget i) Budget period ii) Budget committee iii) Budget manual

      

Describe the following terminologies in relation to preparations of a budget

i) Budget period
ii) Budget committee
iii) Budget manual

  

Answers


Martin
i) Budget period

The conventional approach is that once per year the manager of each budget center prepares a detailed
budget for one year. The budget is divided into either twelve monthly or thirty four weekly periods for
control purposes
An alternative approach is for the annual budget to be broken down by months for the first three
months and by quarters for the remaining nine months. The quarterly budgets are then developed on a
monthly basis as the year proceeds. For example during the first quarter, the monthly budgets for the
third quarter will be prepared. The quarterly budgets quarter may also be reviewed as the year

unfolds. For example, during the first quarter, the budget for the next three quarters may be changed
as new information becomes available. Anew budget for a fifth quarter will also be prepared. This
process is known as continuous or rolling budgeting and ensures that a twelve months budget is
always available by adding a quarter in the future as the quarter just ended is dropped. Contrast this
with a budget prepared once per year. As the year goes by, the period for which a budget is available
will shorten until the budget for next year is prepared. Rolling budgets also ensure that planning is not
something that takes place once a year when the budget is being formulated. Instead budgeting is a
continuous process and managers are encouraged to constantly look ahead and review future plans.
Furthermore, it is likely that actual performance will be compared with a more realistic target;
because budgets are being constantly reviewed and updated.
Irrespective of where the budget is prepared on an annual or a continuous basis it is important that
monthly or four-weekly budgets be used for control purposes.
ii) Budget committee
The budget committee should consist of high level executives who represent the major segments of
the business. Its major task is to ensure that budgets are realistically established and that they are coordinate
satisfactorily. The normal procedure is for the functional heads to present their budgets to the
committee for approval. If the budget does not reflect a reasonable level of performance, it will not be
approved and the functional head will be required to adjust the budget and re-submit it for approval. It
is important that the person whose performance is being measured should agree that the revised
budget can be achieved otherwise, if it is considered to be impossible to achieve, it will not act as a
motivational device. If budget revisions are made, the budgeters should at least feel that they were
given a fair hearing by the committee
The budget committee shall appoint a budget officer who will normally be the accountant. The role of
the budget officer is to co-ordinate the individual budgets into a budget for the whole organization, so
that the budget committee and the budget can see the impact of an individual budget on the
organization as a whole.

iii) Budget manual

A budget manual should be prepared by the accountant. It will describe the procedures involved in the
budgeting process and will provide a useful reference source for managers responsible for budget
preparation. In additional the manual may include a time table specifying the order in which the
budgets should be prepared and the dates when they should be presented to the budget committee. The
manual should be circulated to all individuals who are responsible for preparing budgets.
marto answered the question on February 25, 2019 at 09:13


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