Basic Budgeting Concepts

Basic Budgeting Concepts FAQ  

1. What is budgeting?

A budgeting process is used by businesses to allocate resources, set financial goals, and predict future financial outcomes.

2. Why is budgeting important for businesses?

It ensures financial control, guides decision-making, and helps in resource allocation and performance evaluation.

3. What are the key components of a budget?

Revenue, expenses, profit, cash flow, and capital expenditures.

4. What is a master budget?

A comprehensive budget that combines all individual departmental budgets for a complete financial plan.

5. What is zero-based budgeting?

A method where each expense must be justified from zero, instead of using previous budgets as a base.

6. How does incremental budgeting differ from zero-based budgeting?

Incremental budgeting adjusts previous budgets by a small percentage, while zero-based budgeting starts from scratch.

7. What is the purpose of a cash budget?

To predict the inflow and outflow of cash over a specific period and ensure liquidity.

8. What is capital budgeting?

The process of planning and evaluating investments in long-term assets like property and equipment.

9. What is an operating budget?

It focuses on the company’s income and expenses related to its day-to-day operations.

10. What are fixed and flexible budgets?

Fixed budgets remain constant regardless of activity levels, while flexible budgets adjust based on activity changes.