APPROACHES TO BUDGETING

APPROACHES TO BUDGETING

According to OBIAGBOSO G. C. (1996:27) there are three approaches to budgeting namely:

1. MASTER BUDGET: This is a single summary statement which incorporates functional or supporting budget. Functional or supporting budgets includes all income and expenditure for individual functions of a business such as sales budget, production budget, direct budget, etc. the master budget is usually, direct budget etc. The master budget is usually presented in form of budgeted operating statements, budgeted trading balance sheets. The master budget supported by the subsidiary budgets so presented to the top management. For example, when presented to the top management for approval, if approval is given, the master budget becomes the financial summary of the agreed plan for the budget period being considered usually for the year ahead.

2. CASH BUDGET: This form a budget plans receipts and payment. It is prepared to show the expected receipts of cash and payment during the forth coming financial year. Receipt of cash may be in form of cash sales, payment to debtors, the sales of fixed assets, the issues of new shares of stock. The main function of cash budget is to show the budget cash balance at various points in time throughout the budgeted period. It shows the effect of budget activities like selling, buying, paying wages, investing in capital equipment etc. they form the cash flow of an organization or firm.

3. CAPITAL BUDGET: This plans the capital structure and liquidity of an enterprise for a long period of time. It is concerned with liabilities, fixed and current budgeted working capital, liabilities, fixed and current budgeted working capital, budgeted fixed asset, budgeted equity and loan capital etc capital budget quit often though not always related to a period of time excess of one year.