Setting budgets Flashcards
(9 cards)
What is a budget?
A financial plan that estimates a business’s income and expenses.
What are the 3 types of budgets?
Income budget
Expenditure budget
Profit budget
What are advantages of budgeting?
Helps you focus on the priorities
Controls spending
What are disadvantages of budgeting?
Demotivating if unrealistic
May cause resentment if departments have to compete for money
What are the two budgeting methods?
Historical budgeting
Zero-based budgeting
What is historical budgeting?
When a budget is created using last year’s figures as a starting point.
What is a pro and con of historical budgeting?
It’s quick and simple but assumes business conditions stay unchanged.
What is zero-based budgeting?
When the budget starts from scratch and every expense must be justified.
What is a pro and con of zero-based budgeting?
More accurate than historical if done properly but it’s time-consuming.
