Stages in the budgeting process

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Stages in the Budgetary Process

  • Stage 1: Communicating policy guidelines to preparers of budgets

    The long-term plan forms the framework within which the budget is prepared. 

    It is therefore necessary to communicate the implications of that plan to the people who actually prepare the budget.

  • Stage 2: Determining the factor that restricts output – Principal Budget Factor

    Generally there will be one factor which restricts performance for a given period. 

    Usually this will be sales, but it could be production capacity, or some special labour skills.

  • Stage 3: Preparation of a budget using the principal budgetary factor

    On the assumption that sales is the principal budget factor, the next stage is to prepare the sales budget. 

    This budget is very much dependent on forecast sales revenue.

  • Stage 4: Initial preparation of budgets

    Ideally budgets should be prepared by managers responsible for achieving the targets contained therein. 

    This is referred to as participative budgeting.

  • Stage 5: Co-ordination and review of budgets

    At this stage the various budgets are integrated into the complete budget system. 

    Any anomalies between the budgets must be resolved and the complete budget package subject to review. 

    At this stage the budget income statement, balance sheet and cash flow must be prepared to ensure that the package produces an acceptable result.

  • Stage 6: Final acceptance of budgets

    All of the budgets are summarised into a master budget, which is presented to top management for final acceptance.

  • Stage 7: Budget review

    The budget process involves regular comparison of budget with actual, and identifying causes for variances. 

    This may result in modifications to the budget as the period progresses

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