Master Budget
A master budget is a comprehensive projection of how management
expects to conduct all aspects of business over the budget period,
usually a fiscal year. The master budget summarizes projected activity
by way of a cash budget, budgeted income statement and budgeted balance
sheet. Most master budgets include interrelated budgets from the various
departments. Managers typically use these subset budgets to plan and
set performance objectives. Master budgets are generally used in larger
businesses to keep many managers on the same page.
Operational Budgets
The operational budget covers revenues and expenses surrounding
the day-to-day core business of a company. Revenues represent sales of
products and services; expenses define the costs of goods sold as well
as overhead and administrative costs directly related to producing goods
and services. While budgeted annually, operating budgets are usually
broken down into smaller reporting periods, such as weekly or monthly.
Managers compare ongoing results to budget throughout the year, planning
and adjusting for variations in revenue.
Cash Flow Budget
A cash flow budget examines the inflows and outflows of cash in a
business on a day-to-day basis. It predicts a company's ability to take
in more money than it pays out. Managers monitor cash flow budgets to
pinpoint shortfalls between expenses and sales -- times when financing
may be needed to cover overheads. Cash flow budgets also suggest
production cycles and inventory levels so that a company's resources are
available for activity, not sitting idle on warehouse shelves.
Financial Budget
A financial budget outlines how a business receives and spends
money on a corporate scale, including revenues from core business plus
income and costs from capital expenditures. Managing assets such as
property, buildings, investments and major equipment may have a
significant effect on the financial health of a company, particularly
through the peaks and troughs of daily business. Executive managers use
financial budgets to leverage financing and value the company for
mergers and public offerings of stock.
Static Budget
A static budget contains elements where expenditures remain
unchanged with variations to sales levels. Overhead costs represent one
type of static budget, but these budgets aren't confined to traditional
overhead expenses. Some departments may have a fixed amount of money set
in budget to spend, and it is up to managers to make sure such amounts
are spent without going over-budget. This condition occurs routinely in
public and nonprofit sectors, where organizations or departments are
funded largely by grants.
