C1 Budgeting GapFill

Budgets are financial plans set by businesses. They will cover both  expenditureallowancesexpensesdebts and  receiptsinformationdetailsrevenue budgets. It is important to plan and prepare for both areas. 

If spending is less than budgeted, or revenue is more than budgeted, this is called a  informationluckyfavourablebest variance. The opposite – spending is more than budgeted, and revenue is less than budgeted – is called an  oppositeunfortunateadverserequired variance. Businesses should replan their finances on finding both types of variance.

Budgetary control refers to checking the business  receiptsperformanceprofitsprocedures against the plans. Action should be taken when necessary. 

Sometimes adverse variances are outside the business's control. An example would be a nationwide increase in the price of  materialspaymentsmatchesprofits following a decrease in supply. The business has to decide whether to pass these increases on to their  shareholderscustomerscolleaguessuppliers or leave prices unchanged and accept they will make less  piecesproductsprofitadvertising. 

The marketing department will be set a budget for a  piece ratepromotionprofitproduction they want to run. They should not exceed this as the sales of the product being advertised have to cover the cost of the activity carried out. 

Investment in new machinery is referred to as  capital expenditurecreative expenditurespendinginvesting, and again a budget would be set for this. All business owners need to have a very good overview of their ongoing financial position. This is why many choose to have a contract with a specialist accountancy firm.