Beware of little expenses;A small leak will sink

a great ship

Muhammad Husnain (IN-07) (Group leader)Muhammad Asim Aslam (IN-06)Muhammad Mairaj Saleem (IN-18)Muhammad Ahsan (IN-10)Muhammad Asad Ayoob( IN-31)

INTRODUCTION OF BUDGET

• What is budget?• According to CIMA Official Terminology• A budget is defined as “a quantitative statement for a defined period of time, which may include

planned revenues, assets, liabilities and cash flows. A budget provides a focus for the organization, aids the co-ordination of activities and facilitates control.”

• Australian National Institute of Accountant (“NIA”)• A budget is a master financial document or a “blueprint for action” that set out the expected

contribution from the operation or control of an organization in terms of anticipated cash flows or revenues and expected expenditures over a certain period of time.

Budgeting

• Words, budgeting is the process of “translating financial resources into human purposes” (Wildavsky, 1986).

• Budgeting is also viewed as a process of identifying, gathering, summarizing and communicating financial information of an organization’s future activities.

CHARACTERISTICS OF BUDGET

• A budget is quantitatively stated.• A budget is prepared in advance.• A budget relates to a particular period.• A budget is a plan of action.• A budget is an estimation or prediction of profit potential.

Basic Concepts in Budgeting

There are 3 main elements of a budget.• Sales Revenue

This is the cornerstone of a budget. It is crucial to estimate future sales as accurately as possible because everything else in the budget revolves around these figures

• Total CostsTotal costs include the main areas of fixed and variable.

Fixed costs are the costs incurred whether or not the business turnover increases or decreases. Variable costs are the costs that vary with the level of business turnover.

• ProfitProfit is the amount left over after all the costs have been deducted from the sales. Your profit should be sufficient to at least make a return...

Basic Concepts in Budgeting

• Cash Budget - A budget planning for expected cash receipts and cash disbursements.

• Budget Period - The period of time during which the plan is expected to take place. The most common budget periods are annual.

Basic Concepts in BudgetingBudget will consist of several different components: • Goals and objectives• Justification• Operating budget• Capital needs assessment• Cash-flow report• Reasons for Budgeting • Budgets compel planning • Improved communication and coordination • A guide to action

TYPES OF BUDGET • Sales budget • Production budget• Capital budget• Cash flow/cash budget • Marketing budget • Revenue budget

OBJECTIVES OF BUDGETING:

Companies use budget systems to accomplish goals for growth and sustainability with the finances at hand. The major objectives of budget systems include: Planning. Coordination. Resources allocation. Performance review.

PLANNING:

Companies use a budgeting system to plan for the business's growth and development over a specified period of time. The person who oversees the budgeting system uses the document to specify the opportunities and investments needed as well as their cost.

For instance, if you own a pizza store and want to expand through franchise agreements, you would develop a budgeting system that shows the commercial space needed for additional operations, the cost for training new owners, marketing expenses and the money required to buy additional pizza-making supplies.

COORDINATION: Budgeting systems encourage managers and executives within a company to

coordinate and keep costs manageable throughout the fiscal year. Without a budgeting system, managers do not know the monetary restrictions on their actions or the actions of their co-workers.

For instance, the manager of one production department could use the entire payroll budget for his own needs, leaving the manager of another department without the flexibility to hire additional workers. The budgeting system requires managers to talk with one another and plan accordingly.

RESOURCES ALLOCATION: Efficient resource allocation is one of the major objectives companies have when

developing their budgeting systems. The budgeting system allocates resources across the company while setting aside

enough capital for unexpected problems. For instance, a company could lose inventory to a natural disaster or some other

problem -- an efficient budgeting system would have capital set aside for a "rainy day" that allows the company to buy more inventory without significant revenue loss.

PERFORMANCE REVIEW: Managers use the company's budgeting system to determine if the company

operates efficiently and within the confines of its allocated resources.

For example, if the advertising department of a company goes over budget consistently, an investigation could show that the company pays too much for print advertisements in magazines.

PERSONAL BUDGET: A personal budget is a finance plan that allocates future

personal income towards expenses, savings and debt repayment. Past spending and personal debt are considered when creating a personal budget. There are several methods and tools available for creating, using and adjusting a personal budget. For example, jobs are an income source, while bills and rent payments are expenses.

A budget allocates or distributes expected income to expected expenses and intended savings.

WHY PERSONAL BUDGET IS IMPORTANT?

It's important to figure out how you're spending your money and where you can save. By getting a hold on your spending, you can build your savings and improve your credit score so that you have enough money for emergencies or those big-ticket items. To Understand Your Spending Habits: Every budget must start from the same place: figuring out how much you're making and how much you're spending each month. By figuring out where your money is going, you'll be more aware of where you need to cut back to pay off your debt and contribute to savings.

TO STOP LIVING PAYCHECK TO PAYCHECK : No one likes that tight feeling that comes at the end of a pay period when you don't have very much money sitting in your checking account. By creating a personal budget, you have a projection of how much money you should be spending throughout the month so that you don't have to panic while waiting for your next paycheck. To Keep Your Credit Score Healthy: Your budget is a road map for what you spend money on each month, so you can schedule payments for bills, credit cards and loans in advance, which means on-time payments. According to MSN Money, 35 percent of your credit score is based on your payment history, while 30 percent is based on your debt-to-credit ratio.

by paying your bills on time and paying down your debt, you'll boost your credit score considerably, which means that you'll have an easier time qualifying for loans with lower interest rates when you need them. To Build A Savings Account: You need to have a cushion to be truly financially secure. While experts recommend saving eight months' salary to protect you in the event that you lose your job, most agree that paying off your credit cards takes precedence to avoid costly interest. By creating a budget, you will be able to control your money so that you contribute at least 10 percent of each paycheck to savings.

ADVANTAGES OF PERSONAL BUDGET:

See The Big Picture: with a budget, you can easily see what is coming in, what is going out and what is staying in your hand. When you have such financial information handy, you will be better able to make important decisions that will help you now and in the future.

Financial Freedom: Have more money to spend on all your needs. With a budget, you will set an amount for every category, this way, you will never have to spend all your money on one thing and not have anything left for other things. A budget ensures everything stays within its boundary and not be impacted by what you are spending on other things.

ADVANTAGES CONT.….

Helps With Your Saving: you know what you are spending on and what is left for saving or vise versa. with no budget, there is no visual or mental restriction on you and what you can spend your money on, so you could end up with no money for your savings

Serves As A Mirror Of Your Financial Situation: by laying it all out in a budget, including your income, spending and money leftover for saving, you will be able to judge your situation and decide what needs to change. Is the money you are making not enough, and as a result, need a new better paying job? or are your spending out of control and you need to do something about it? A budget will help you see your current status and you can then decide what you need to change.

ADVANTAGES CONT.….

Eliminate Stress: a budget will help you eliminate both your debt and the stress that comes with it. Think about it: a budget is like those ‘debt consolidation plans’ that you have likely been hearing a lot of lately.

See Problems And Adjust: are you spending too much on eating out? are you paying lots of interest on your credit card debt? with a budget, you will be able to see problems such as these and be able to correct or adjust them

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A BUNDLE OF THANKS TO SIR AYAT