The Budget Manual

7 The Budget Manual

How does a budget manual

To be useful, a budget requires a substantial amount of time and effort from the

facilitate the budgeting process?

persons who prepare it. This process can be improved by the availability of an or-

budget manual

ganizational budget manual, which is a detailed set of information and guidelines about the budgetary process. The manual should include

1. statements of the budgetary purpose and its desired results;

2. a listing of specific budgetary activities to be performed;

3. a calendar of scheduled budgetary activities;

4. sample budgetary forms; and

5. original, revised, and approved budgets.

Chapter 13 The Master Budget

details. An example of a general statement of budgetary purpose is “The Cash Bud- get provides a basis for planning, reviewing, and controlling cash flows from and for various activities; this budget is essential to the preparation of a pro forma State- ment of Cash Flows.” Specific statements could include references to minimum de- sired cash balances and periods of intense cash needs.

Budgetary activities should be listed by position rather than person because the responsibility for actions should be assigned to the individual holding the des- ignated position at the time the budget is being prepared. The manual’s activities section should indicate who has the final authority for revising and approving the budget. Budget approval may be delegated to a budget committee or reserved by one or several members of top management.

The budget calendar helps coordinate the budgetary process; it should indi- cate a timetable for all budget activities and be keyed directly to the activities list. The timetable for the budget process is unique to each organization. The larger the organization, the more time that will be necessary to gather and coordinate in- formation, identify weak points in the process or the budget itself, and take cor- rective action. The calendar should also indicate control points for the upcoming periods at which budget-to-actual comparisons are to be made and feedback pro- vided to managers responsible for operations.

Sample forms are extremely useful because they provide for consistent pre- sentations of budget information from all individuals, making summarization of in- formation easier and quicker. The sample forms should be easy to understand and may include standardized worksheets that allow managers to update historical in- formation to arrive at budgetary figures. This section of the budget manual may also provide standard cost tables for items on which the organization has specific guidelines or policies. For example, in estimating employee fringe benefit costs, the company rule of thumb may be 25 percent of base salary. Or, if company pol- icy states that each salesperson’s per diem meal allowance is $30, meal expenses would be budgeted as estimated travel days multiplied by $30.

The final section of the budget manual contains the budgets generated during the budgeting process. Numerous budgets probably will be submitted and revised prior to actual budget implementation. Understanding this revision process and why changes were made is helpful for future planning. The final approved mas- ter budget is included in the budget manual as a control document. 6

KEY TERMS budget (p. 552)

financial budget (p. 556)

budget manual (p. 578)

imposed budget (p. 576)

budget slack (p. 576)

operating budget (p. 556)

budgeting (p. 552)

participatory budget (p. 576)

continuous budgeting (p. 576)