According to George R. Terry, “Budget is an estimate of future needs, arranged to an orderly basis, covering some or all of the activities of an enterprise for a definite period of time”. In the words of Professor Larders, “the essence of a budget is a detailed plan of preparations for some specified future period, followed by a system of records which will serve as a check upon the plan”.
All churches need to manage their financial performance so that their vision and mission objectives are achieved. The proper construction and control of budgets is central to this, to safeguard the church’s viability and the effective delivery of its mission statement objectives. This requires a comprehensive financial planning and approval framework; consistent and rigorous processes for constructing budgets, both capital and revenue.
What Is Budget?
Budget is simply a plan of actions in financial terms for a period of time, usually one year. It is an aid to prudent management of financial resources and an instrument of monitoring and control.
All parishes are expected to prepare their annual budget in advance and follow their implementation. Variance should be calculated and the reasons noted. Adjustments should be made especially where the variances are adverse.
Characteristics Of A Budget
A good budget is characterized by the following:
1. Participation: involve as many people as possible in drawing up a budget.
2. Comprehensiveness: embrace the whole organization.
3. Standards: must be based on established standards of performance.
4. Flexibility: allow for changing circumstances.
5. Feedback: constantly monitor performance.
6. Analysis of cost and revenues: this can be done on the basis of product lines, departments or cost centres.
Classification Of Budgets
Budgets may be classified on the basis of purposes for which they are prepared. On this basis, we have the following types of budgets.
1. CASH BUDGET: Cash budget gives the estimated receipts and payments for the budget period and indicates the position of cash arising from it. It shows the cash requirements at various time of the budget period and helps the management in planning and arranging cash for the business concern. Thus, it ensures that a business concern never suffers from a shortage of funds. In addition, the cash budget helps the management in controlling and coordinating the activities concerned with receipts and payments.
2. CAPITAL BUDGET: Capital budget gives the estimates in respect of the capital resources of the organization concerned. It also states the plans with the estimated cost for investment, expansion, replacement, etc.; thus, the budget serves as a device for planning capital expenditure.
3. SALES BUDGET: It states the sales potential in terms of quantity, values, period, product, etc., for preparing the sales budget. Factors such as the price trend of the product, population tend, customer’s purchasing power, extent of advertising, past sales, nature of competition, economic situation in the country etc., are considered.
4. PRODUCTION COST BUDGET: Production cost budget lays down the estimated cost of carrying out the plans relating to production. Production cost budgets like labour budgets, raw material budget, production overhead budget, etc.
5. MASTER BUDGET: Master budget is summary of all functional budgets and indicates how they affect the organization as a whole. A master budget generally includes particulars regarding sales, production, cash position, labour, overhead and administration overhead.
Budgeting Or Budgetary Control
Budgeting is the process of preparing budgets whereas budgetary control is a device or technique of managerial control through budgets.
According to J. Batty, “Budgetary control is a system which uses budgets as a means of planning and controlling all aspects of production or services”. Thus, budgetary control is planning in advance the various aspects of business that can be controlled.