A budget refers to a list of premeditated revenues and expenses. It represents a tool for savings and expenditure. A budget can also be defined as an organizational plan that is stated in monetary terms. It is used as a road map for conducting the activities, objectives, assumptions, and strategies of an organization. In most instances, companies and other institutions prepare master budgets for the coming year. The master budget includes the projected incomes and revenues. Incorporated in the master budget are other smaller budgets such as sales, production, marketing, administrative, and departmental budgets. Additionally, companies prepare cash and capital expenditure budget. Thus, there are various types of budgets, each varying in use and the type of institution that prepares the budget. The components of the master budgets are entirely reliant on the type of organization.
In most instances, budgets are and should be prepared for a future period such as an oncoming accounting or financial year. They are detailed by quarters or months. Typically, annual budgets are not altered once the year begins. However, budgets should not be rigid so as to prevent timely actions if need arises. Instead, budgets should only act as a guide rather than a restriction. However, there are rare circumstances when an annual budget should be revised such as due to a radical change in the business environment.
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Using a police budget
Police budgets refer to the funds that are allocated to finance the police department costs within a specific city. Police budgets vary from city to city and are highly dependent on such factors as the rate of crime, the composition of people living in a specific area, and the rate of crime among other factors. The budgets are used to allocate funds to such costs as the salaries of the police officers, promoting effective communication between police officers and the community, and to finance the costs that are incurred to reduce crime rates and improve the quality of life. Thus, an increase of a decrease in the costs of a police department may trigger adjustments on a specific budget. Furthermore, police budgets include a plan that outlines the proposed increases in costs and revenues. Increased costs may entail such costs as contractual obligations by the police and revised retirement rates by the government among other costs. Costs reductions include such measures as reduction in the staffing levels due to budgetary cuts, program cuts, and other operational costs (Portsmouth Police Department, n.d.).
A budget cycle
A budget cycle refers to the whole process from the commencement of developing a budget to the execution of the final charge on the budget. Since the majority of the budgets are prepared for a one year period, budget cycles cover the costs and expenditures for a period of one year. However, there are budget cycles that run for more than one year period. Government budgets have a budget cycle of at least 18 months from the conception of the various departments' budgets to the time the appropriation bills are signed into law (Hyde, 2001). The initial steps of the budget cycle take place in the various departments and agencies. The program officers in the various departments compile all information that is necessary in the preparation of the budget. The budget cycle culminates with the president's budget application to the Congress. This often takes place in February.
A budget cycle is comprised of various stages. Budget planning for the new fiscal year marks the first step of the budget cycle, while closing and carry forward activities mark the end of a budget cycle (Hyde, 2001). The steps outlined below are steps of a sample government's budget cycle:
Budget planning: this marks the first step in the budget cycle.
Budget submissions: this entails the submission of the budget plans to the respective Budget Offers in various government departments. The budgets are reviewed and approved.
Budget approval: this entails the executive committee approving the budget. The Initial Budget Authorizations are then submitted to the respective supervisors who address the respective cost items.
Global Changes: the salaries are adjusted so that they reflect salary increases that are permitted by the Salary Subcommittee and the Human Resources Department.
Always on Time
Marked to Standard
Closing: this entails the closure of the budgets at the end of the fiscal year.
Carry forwards: it entails carrying forward all the unspent money to the following fiscal year. This marks the last step in the budget cycle.
Importance of Budgeting
Budgets and forecasts are critical in providing a feasibility analysis (Arthur & Sheffrin, 2003). They aid an organization in developing a business model, review their major assumptions, and identify capital and resource requirements. Budgets are also important for obtaining funding since they portray an organization's capacity to the lending institutions and financiers. Additionally, budgets are important management tools, they aid in setting milestones that need accountability to achieve, and aid an organization in identifying risks and establishing benchmarks (Hyde, 2001). Thus, budgets facilitate the process of making adjustments to avoid risks, and to measure the benchmarks.
Understanding the significance of budgeting marks the first step towards successful financial planning. It plays a significant role in the strategic planning process by an organization. It outlines the future financial goals and needs of an organization such as technological needs, overhead needs, financial requirements, and capital improvements. It outlines the costs involved and the resources that are required to meet the goals. A budget is an important tool for determining the standards of performance, motivating the management and the other members of staff, and measuring the results towards attaining the organization's goals.