2.2.4 budgeting

• What is a budget?

  a spending plan based on income and expenses
• 3 types of budgets

  profit, income, expenditure
• Information needed to write a budget

  historical data, own knowledge, market research
• Benefit of budgets

  makes sure businesses dont spend money they dont have
• Drawbacks of budgets

  hard for a new business as they have no past data
• Risks of not budgeting

  could end up running out of cash
• Expenditure budget


  predict how much business will spend over a period of time
• Income budgets


  predicts how much money will come in from sales
• Profit budget

  Income budget - expenditure budget
• adverse variance

  when actual profit is lower than budgeted profit
• favourable variance


  Exists when the difference between the budgeted and actual figure leads to a higher than expected profit.
• What is a contingency cost?

  An amount included in a budget to cover any unexpected issues