Reference no: EM13500033
Misty Touchet
When a budget is created the business is essentially making a plan and creating a formal statement that can be presented to the board that shows what the company plans to do and how they plan to do it. The individual projects that will take place during a specific time frame are carefully planned out. The funds needs to complete the projects, as well as the funds needed for the company to run, such as salaries and utility costs, are put together in a budget so that there is a clear picture of what it is going to take to achieve the goal.
A forecast on the other hand is a prediction of what might happen. A forecast can show the changes in costs due to inflation, the stock market, supply and demand, and other ever changing aspects that cause prices to increase or decrease substantially. Forecasts can help managers when they are looking at a project costs for budgeting purposes.
The operating budget shows the income and expenses of a company. It follows the costs of the supplies and the income generated by the produces. The cash budget shows the inflow and outflow of the cash and helps managers keep the cash balance in check. There are four major sections to the cash budget, the receipt section which shows the beginning cash balance and tracks the cash receipts collected from customers, the disbursement section that tracks all the payments made, the cash surplus or deficit section which shows the difference between collections and payments, and the financing section which tracks money that is borrowed and repaid.
A zero-based budget (ZBB) is a budget that begins with a zero balance. The budget must be reviewed and then determined if it will be funded. If the budget is not funded it could affect other projects so alternatives must be pursued. Non-profit organizations use zero-based budgets frequently. ZBB forces an organization to prioritize its projects and look for alternative ways to fund or do projects. ZBB also forces organizations to plan over several years because of the time and cost required.
Reference
Shim, A. I., Shim, J. K., & Siegel, J. G. (2012). Budgeting
Basics and Beyond. Hoboken: John Wiley & Sons Inc .