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definition of financial budget

financial budget

The financial budget is defined as the process of preparing detailed financial statements covering a certain period of time in the future, and it is also defined as the program prepared for spending for a certain period of time, where financial and business objectives are formulated to achieve the expected results over the course of the next fiscal year, and then documenting these results in a format that allows By comparing the method used for financial planning against actual financial results throughout the year, and the term financial budget is used by governments or at the level of companies.
definition of financial budget
definition of financial budget

Types of financial budget

A country or company that wants to match its actual performance in the future works on developing an ideal financial budget that includes the best estimates of sales, expenses, asset replacement, cash flow and other factors. There are several types of alternative financial budget available each year and some of them are summarized as follows:

1- Fixed budget

This is the traditional form of the budget, where a model of the expected results for the next year is modeled, and then an attempt is made to impose the actual results during that period to align with the balance sheet model as closely as possible. It's hard to achieve sometimes.

2- Zero budget

Zero-based budgeting involves defining what results management wants, and developing a package of expenditures that support each outcome by combining various packages of expenditures. The budget is derived, which should lead to a specific set of outcomes for all business, and this type of financial budget is useful for services at the level of Governments, where the provision of these services is critical, yet they also take a long time to develop compared to a fixed budget.

3- Flexible budget

This type of budget allows entering different sales levels into the prepared annual form, which will then adjust the levels of planned expenditures to match the sales levels entered, and this type is useful when sales levels are difficult to estimate, and with the flexibility of this type of financial budget, it is more Difficult to set up from a fixed budget model, but tends to achieve a budget that can reasonably be compared to actual results.

4- Budgeting by Increasing Budget

An incremental budget is an easy way to update a budget model, as it assumes that past expenditures may be subtracted into the future. Although this type results in simplified budget updates, it does not result in a detailed examination of the efficiency and expenditures of a company or government. Thus, it does not help, for example, in establishing a small and efficient enterprise.

Purpose of the financial budget

The development of the financial budget helps the government or the company in planning and monitoring with regard to revenues and exports, and examining its financial position each year. The financial budget also helps by activating the income-generating activities of the company or the government, where the operating budget is prepared first because many financial activities are unknown, until they are Knowing other operating budgets, for example, the sales budget and production budget must be known before the financial budget is prepared by any facility.
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