Different Budget Categories in Management Accounting

February 11, 2013

For every business, key players, such as supervisors and department heads, should be aware of the status of their operations through correct financial statements in order for them to make sound decisions and give them a better idea on how to properly control and maintain their functions. As such, these reports should be correctly manifested in order to be precise and accurate.

Master Budget

This is a list that contains financial plans from every department in the enterprise and also includes details regarding the specific economic goals of the entire company. Accountants collate all these details into one major file which is then submitted to the board for analysis. Most establishments come up with these statements once a year so that they have time to contemplate various marketing strategies by studying the business' progress. This also serves as a guide to hit quotas.

Operating Budget

All industries mark each year with different seasons, each of which is monitored by recording the sales and income within each period. Depending on the nature of the commercial entity, this particular catalogue is presented either monthly or annually and details forecasts, manufacturing charges and expenses. It also makes up the necessary outlays needed to generate transactions for the corporation. Basically, this log monitors the growth and stability of the conglomerate, as well as keeps track of each departmental cost.

Flexible Budget

This type of list is important to retail and service oriented companies to measure production costs of goods and services and keeps track of daily operations through documenting the variance expenditures of the manufacturing process. Accountants calculate the actual amount spent on materials, labour and overhead against the budgeted expenses to figure out how these discrepancies occurred. These situations are determined either as favourable or not depending on the quantity of extra money spent or saved during the entire process.

But companies have to make sure that all the data contained in these reports are correct otherwise they might be and spending insane loads of cash on methods that aren't even necessary.