Types of Budgets and Budgeting Techniques - Research Paper Example

Depending on the worth and value of a business, an organization creates a budget that well suits the resources and funds a business is exposed to. Additionally, different organizations have implemented different forms of budgeting. The different types of budgeting greatly depend on the time period and the monetary requirement by an organization. Some budgets are created only to cater to short time needs while others may be created to meet long time expectations of an organization (Cliche, 2012).

The author further argues that some budgets are based on the expected income in a specific period of time while otherd are based on the cash in hand at the time of the creation of the budget. Kinds of Budget i. Operating Budgets This kind of budget is a financial statement that presents the financial plan for every expense and revenue (O’Sullivan & Sheffrin, 2003). The plan dictates the funds allocated to each responsibility around expenditure and revenues over the budget period. Operating budgets include the profit budget and revenue budget.

The expense budget is a budget documentation that highlights the expected expenses over the budget period (Cliche, 2012). Forms of expenses include the variable discretionary and fixed expenses. Discretionary expenses are those that are created by the management decisions and cannot be based on certainty, for instance the accounting fees. Revenue budgets project the future sales of an organization based on the requirements of the organization. Profit budgets combine the results from the expense and revenue budget to create a final resource allocation system in the organization. ii. Financial Budgets Financial budgeting revolves around how an organization plans to get money and how it plans to use the funds.

They include the cash budget, balance sheet budget and the capital expenditure budget (O’Sullivan & Sheffrin, 2003). The cash budget is based on the amount of funds an organization has on hand, and the expenses the organization has to cover over the budget period. It helps organizations evaluate the expense clearance capabilities. Capital expenditure budget helps an organization know whether they have enough funds to cover capital investment over the budget period. Capital investments include investment in heavy machinery or in buildings and property (Cliche, 2012).

Balance sheet budget calculates the quantity of assets and liabilities over the budget period to be considered. iii. Variable Budgets Variable budgets are budgets created to offer more than the provisions of the fixed budget. They are flexible enough to cover the variations that may occur over the budget time (O’Sullivan & Sheffrin, 2003). However, variable budgets are difficult to prepare since the cost variables are difficult to predict and determine. iv. Zero Base Budgets In other budgeting creations, managers carry forward the results obtained from the previous calendar recordings.

This is a shortcoming that makes an organization not evaluate their progress from a fresh start. In ZBB (zero-base budget) the results from the previous calendar are disregarded and a fresh financial plan is created (Cliche, 2012). In my organization, the most appropriate budget to use is the operational budget. The technique in this type of budgeting is based on the ability to record and allocate funds to each responsibility in the organization over the budget p