Budgets help organizations turning their long-term strategic objectives into reality. It is a future plan through which the financial targets have been set. Motivation, control, coordination, planning are four key aspects of the budget. The process of budgeting includes objectives, evaluation of performance, and comparison of results with plans, and forecasting and plans. Budgeting can offer many benefits, such as encouragement of coordination and cooperation, responsible managers, the setting of plans with respect to financial terms, significant help in performance evaluation and strategic planning. There are four key types of budgeting: incremental budgeting, zero-cost budgeting, flexible budgeting, and comprehensive budgeting. Whereas, some other types of budgeting techniques are resource-restricted budgeting, participatory budgeting, performance budgeting, planning-programming budgeting, and priority-based budgeting.
In the toolbox of management accountant, one of the significant tools or techniques is comprehensive organizational budgeting. It involves the critical planning of activities expressed in financial terms of the costs, revenues, equities, and assets that will be included in conducting the organizational plans.
In this technique to calculate the requirements of cash, the costs of production and revenue are calculated and the input assumptions are evaluated. Moreover, it comprises of two types of budgets, i.e., that is financial budgets and operational budgets. The financial budgets consist of the budgeted balance sheet, capital expenditures budget, cash budget, and income statement. Whereas the operating budgets comprise of operating expense budget, cost of goods manufactured, manufacturing overhead budget, direct labor budget, and sales budget.
The preparation of operating budgets is involved in the zero-based budgeting. This budgeting technique assumes every related cost having a zero base. For each specific new period, all of the expenses are justified. It also assumes that the organization has just initiated in the new period of planning. It appears that as a sequence of fixed-term contracts, organizational life exists. The next thing in this specific budgeting is that all of the items related to the expenditure are worked out and decisions are carried out whether the purchases are mandatory or not. The involvement of all executive managers is required by this budgeting approach.