Chapter 6
Chapter 6
Chapter 6
Some of these factors are: Past sales figures and trend, Estimates and
reports by salesmen, General economic conditions, Orders in hand,
Seasonal fluctuations, Competition etc.
3) Cash budget Cash budget contains estimated receipts and payments of
cash over the specified future period. It serves as an effective device for
control and coordination of activities that involves receipt and payment of
cash. It helps to detect possible shortage or excess of cash in business.
The financial budget also contains estimates of the firm’s profits and
expenditure i.e., the operating budget.
4) Flexible Budget: - A flexible budget, also called a variable budget, is a
financial plan of estimated revenues and expenses based on the current
actual amount of output. In other words, a flexible budget uses the
revenues and expenses produced in the current production as a baseline
and estimates how the revenues and expenses will change based on
changes in the output. This is why it’s often called a variable budget.
Management often uses flexible budgets before a period to predict both a
best case and worst case scenario for the upcoming accounting period.
This provides a "what if" look at the future of the company’s financial
performance.
Flexible budgets can also be used after an accounting period to evaluate
the successful areas and unsuccessful areas of the last period
performance. Management carefully compares the budgeted numbers with
the actual performance statistics to see where the company improved and
where the company needs more improvement.