Key Purposes and Techniques for Budget Preparation

FNSACC412 Prepare Operational Budgets
FNSACC513 Manage Budgets and Forecasts

Contents
Contents...........................................................................................................................................2
1. Key purposes for preparing budgets and key techniques:.......................................................3
2. Type of information and different sources of information used in budget process:................3
3. statistical analysis in preparing budgets and in monitoring budget outcomes:.......................4
4. Explain difference between qualitative and quantitative method of forecasting:....................5
5. Three different methods for forecasting trends:......................................................................5
6. Ethical dilemmas:....................................................................................................................6
7. Ethical Considerations:............................................................................................................6
8. Limitations of Budget figures:.................................................................................................7
9. How are KPIs and milestones relevant in the budgeting process............................................8
10. How are the principles of corporate governance relevant in relation to budgeting and
forecasting....................................................................................................................................9
11. Main areas of risk when forecasting:...................................................................................10
12. areas of Organisational policies and procedures:................................................................10
13. Provide a definition and two examples of each:..................................................................11
14. Budget meaning and its key purposes:................................................................................12
15. Four stages of strategic planning cycle:...............................................................................12
16. Listing controllable and non-controllable factors................................................................13
17. Principles of accrual accounting and double-entry bookkeeping and how they impact
budgeting process:.....................................................................................................................13
REFERENCES..............................................................................................................................14

1. Key purposes for preparing budgets and key techniques:
Budget is designed to schedule, organize, supervise, and enhance a organization's financial
status. In other terms, budget keeps organization on track for their longer-term financial targets
by allowing you to manage expenses and reliably save and save a part of profits. A budget is tool
for developing and coordinating short-term strategies. It serves as a baseline for managing
ongoing operations. Budget serves as a baseline for determining the effectiveness of
accountability centres and their executives (Foster, 2017).
Techniques to prepare budget:
1. Traditional budgeting: This is way of preparing a budget which incorporates the previous
year's plan as a starting point. The present period's budget is created by modifying the
prior period's budget as well as changing costs based on inflation, customer demand,
business conditions, and other factors.
2. Incremental budgeting: This is way of preparing the current period's budget through
incorporating adjustments to the previous period's budget. The adjustments come in form
of including or subtracting costs from the previous period's budget.
3. ZBB: Most companies use the zero-based budgeting approach. In ZBB, present year's
budget is produced from the ground up, with no reference to previous period's budget.
4. Activity-based budgeting: This is system of budgeting wherein outputs, budget objectives
or task is determined initially. In other terms, the administration takes top-down approach
in this case.
5. Rolling Budget: After the last reporting period is finished, rolling budget is revised by
introducing new accounting periods. A complex solution is taken for rolling budget.
Rather than a fixed 12-month schedule, this moves by quarter or even a month.
2. Type of information and different sources of information used in budget process:
The Business Plan
Period over period, business plans begin to adjust, which may have a huge effect on budget.
Anyone interested with budgeting should become familiar with Business Plan. This is crucial to
figure out if there are any entirely new plans, potential improvements in the size of business
adjustments in personnel levels special activities, scheduled repairs, and other budget-related
considerations.
Historical Information for Budgeting

Audited financial statements offer a lot of knowledge on how organization operates financially,
whether this is in its initial year of operation. Financial accounting framework, for instance, will
offer accurate information about:
• Typical streams of revenue for the company
• Gross profitability margins
• Expenses such as power, rates, repairs, wages, and office charges, among others.
• Repayment of loans
• Other expenses that are sometimes ignored
Knowledge of Key Personnel
It's definitely a risky proposition for one individual to try to build budget for a company on own.
A much better approach is to enlist the help of a group of individuals, every of whom being
tasked with estimating sales (if any) and expenses for a division or unit of the organization for
that they have authority (Burgos, Kittler and Walsh, 2020).
3. statistical analysis in preparing budgets and in monitoring budget outcomes:
Statistical analysis used in the budgeting process gives the organization a yardstick to utilize
when assessing a department's results. The statistical anaysis lays out the anticipated costs and
profits for the next year. The corporation contrasts real operating reports to those reported
in statistical budget for the year. The disparity between the real observed figures and the
budgeted numbers is referred to as a deviation.
When variance exceeds a certain threshold, the organization reviews the incidents in the
division to see if variance was caused by the manager's conduct. This variation is used by the
organization to measure the manager's results. Managers use mathematical analyses to make
predictions for the next year. Employee job standards and work environment management are
examples of these decisions (Kovalchuk, 2017).
If manager has to cut extra hours to reach the budgeted figures, she will change the individual
job conditions to fit work with regular working hours. If utility bill exceeds the budgeted
number, she will lower facility's temperature.
Static budgets (as well as their analyses) are crucial in two fields of financial reporting
for many enterprises:
• Production as well as Operations.
• Revenues and Costs of Sales