A budget is a plan of present and future expenses and revenues. The purpose of a budget is to create a projection of spending, savings, and allocation of money. The monetary amounts in a business are allocated to various business objectives and strategies to achieve goals.
Budgets are prepared before the accounting year begins and released on the first day of an accounting year. These are financial plans a company aims to stick by. But they often need adjustments according to requirements. Different types of budgets are:
- Static budget: Static budget doesn't change even when there are changes in business activities such as sales, expenses, and revenues.
- Flexible budget: Flexible budgets change according to business activities.
- Rolling budget: The budget is continuously extended by cutting one month after completion and adding one more month on the end date. For instance, the accounting year is from June 1st, 2016, to May 31st, 2017. After the completion of June, the accounting period is extended to June 1st, 2017.