Preparation of budget and cash flow is important to determine the profit of a company in future. In the study, the definition of budget and its differentiation with the cash and expenditure are mentioned in the study. The calculation of sales budget, capital budget and expense budget of different companies are calculated in the study. Presentation of graph ion the basis of calculated cash flow is also mentioned in the study. Calculation of financial position of a company is also calculated in the study.
According to Hutchings et al. (2014), a financial statement that is created for predicting future loss or profit of a company regarding the business activities is called budget. Budget also helps in differentiating what was predicted and what has happened in the financial activities in real for the company.
Sales is regarded as revenue for the company and cash receipts is said to be the cash balance of the company which helps in continuing day to day business activities of the company. Expenditures are important such as salaries and wages, advertisement, purchase of raw material that are important for a company to incur to bring revenue to the company.
According to Van Auken & Carraher (2013), the budget that is created by considering that there will be no change in the expenses of the company in spite of increase and decrease of sales is called fixed budget.
As per Hoiles & Krishnamurthy (2015) the budget that is created by considering that there will be change in the expenses of the company due to increase and decrease of sales and also other expenses is called flexible budget.
As per Rydholm & Luhr (2014) the point where the profit and the expenditure meets and creates a Zero value for the profit of the company is called breakeven point.
Types of budget
Operating, static, financial and cash flow are the main 4 types of budget that is used by the Australian companies in predicting profit and loss of the company.
Summers (2016) said that budget is a very important predicting tool that financially reflects the future results of the company on the basis of present condition. There are also certain limitations that are associated with the budget which are as follows;
Lack of proper selection of budget type is a limitation of budget
Understanding the current situation and on that basis preparing the budget is also one of the most important limitation.
Budget by less experienced personnel brings a wrong predicted result in the budget for a company. Well-experienced personnel are required for preparing budget.
Prediction of future situation that may happen in the economy and preparing on that basis is also an important limitation that a company faces in the time of preparing budget. Proper prediction by managerial officials is required for preparing budget.
Plan future expenditure
According to Zeller & Metzger (2013), an important role of budget is to plan future expenditure of a company. Future expenditure prediction is done on the basis of present financial status of the company and also the future expenditure clears the profit or loss that the company au ace for spending more or less.
Predicting future success of a company
Gane et al. (2014) said that future success of the company is based on mainly the budget that is prepared. Actually, budget is the tool that created the way by which the company can move to meet its objective. However, inefficient budget preparation may bring loss to the company in future also.
Track variances in spending
Tracking the spending variances for the future is an affecting function of budget is, it help in finding out the variances or the changes that happened between budget and real financial activities of a company.
Performance report information
The budget helps in getting performance report on the basis of the budget made by the company. Monitoring of activities and finding loopholes is also dined, as budget of the company is prepared earlier.
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