Week 5 The Budgeting Process

Week 5: Lecture

The Budgeting Process

The basic process of creating a budget involves four steps:

  1. List the items to be included in the budget (example, all the sources of income and all the expenditures expected to be made)
  2. Summarize what is known about how each item in the budget is expected to change in the future. Some of the factors to be considered are:
    • past sales levels and trends
    • economic trends
    • likely action of competitors
    • market research studies
    • possible government actions, for example new legislation affecting the business.
  3. Apply the expected changes to each budget item to produce the budget
  4. Follow-up: At the end of the budget period compare the actual results that occurred with the budget and note the variances (the amounts that the actual results differed from what was expected). Use these variances to improve the budget next time.