![]() ![]() For example, if a particular expense last year was 50,000, the business might anticipate a 2% increase for the year and budget the expense for next year at 51,000. Traditional budgeting techniques involve using historical financial information (usually the previous years financial statements), and adjusting these for growth, inflation, and other known factors, to arrive at the next years budget. What is Zero Based Budgeting?Ī budget shows the planned financial outcome of a business based on its current intentions and objectives and can be prepared using either the traditional approach or the zero based budgeting approach. In contrast, a forecast sets out where the business is going, which may be nowhere near the target set. A budget sets out where the business wants to go, a target, something to aim for. The purpose of the budget is to set a target for the business to aim for, without a budget the business is aimless, like starting a journey before deciding where you are going.īudgets are often confused with forecasts. For example, suppose a business is aiming for electricity costs to be 10,000 for the next year, this would be classified as an annual budget of 10,000. ![]() There are various types of budgeting techniques including zero based budgeting, flexible budgeting, and rolling budgets which are discussed below.Ī budget is a financial plan which a business sets itself, it lays out the target financial outcome the business is aiming for.Ī business prepares budgets for accounting periods, usually a month or a year, and set out the intentions and financial objectives for the forthcoming accounting period. ![]()
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