Budget Report Definition Example How It Works

Budget Report Definition

Example of Budget Report

The budget report helps identify the estimation of future growth of sales, which is required to sustain the market. It also identified how the company would achieve the sales target by acquiring new customers, business units, and segments.For example, suppose an organization makes a goal that $ 200000 sales will achieve in the upcoming month, which can be done by reducing their sale price per unit, acquiring new customers by giving them a discount.
The budget report is used to identify how many units of production are required to fulfill the demand for sale. It also estimates how much will be the labor costLabor CostCost of labor is the remuneration paid in the form of wages and salaries to the employees. The allowances are sub-divided broadly into two categories- direct labor involved in the manufacturing process and indirect labor pertaining to all other processes.read more, materials cost needed to make a business profitable.For example, suppose there is a demand for 1000 units, and the selling price per unit is $ 20. To achieve this target, the organization has to estimate 1000 units of production. It has to estimate how much labor cost and raw materials costs are needed to make the production cost per unit lower than $ 20 to maintain a profit.These reports estimate the advertisement, promotion, research, and development needed to increase their sales revenueSales RevenueSales revenue refers to the income generated by any business entity by selling its goods or providing its services during the normal course of its operations. It is reported annually, quarterly or monthly as the case may be in the business entity’s income statement/profit & loss account.read more.For example, today’s world is so competitive, and numerous products and services are available in the market. Advertising and promotion are important ways to bring the attention of a customer.
This report is needed to estimate the upcoming expense and income. It generally covers the short-term period. It helps to identify how income is sufficient to meet the expenses. It also identifies the need for outside financing when it is required.It provides information about how an organization will invest in new machinery, new products, and replace old machines and whether the same is fruitful for the organization.All the expenses under the budget need approval, and nothing will carry forward from the previous year’s budget. It is very useful when there are limited resources available in the organization.

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Advantages of the Budget Report

This report is important to safeguard the organization from future threats. Suppose the organization’s expenses will increase next year, and one will make sufficient provisions to safeguard them.It is helpful to identify the growth of the organization.It identifies the viability of a future project.It helps to identify the weaknesses of a project.
It provides information regarding the liquidity positionLiquidity PositionLiquidity is the ease of converting assets or securities into cash.read more of an organization through the cash budgetCash BudgetCash budget refers to cash inflows and outflows estimations made by a company’s management over a given period to evaluate whether the business has adequate cash & cash equivalents to meet its operational needs in the coming future.read more.It provides necessary information regarding the going concern assumption of an organization.

For example, there is litigation going on, and if the organization loses the case, it requires a huge amount to pay; they might have to sell some assets to pay the same, which can question ongoing concern assumption.

It is very important for the management of the decision-making process.It provides information regarding the debtor’sThe DebtorA debtor is a borrower who is liable to pay a certain sum to a credit supplier such as a bank, credit card company or goods supplier. The borrower could be an individual like a home loan seeker or a corporate body borrowing funds for business expansion.
read more position and future recovery.
It is important to identify an organization’s credibility to meet its dues.It provides useful information for investment purposes.Proper training and skill are required to prepare the budget report.

Disadvantages of the Budget Report

It is generally considered only a future expense, income, investment, or asset.It doesn’t provide information relating to the current situation.Preparation of a budget is time-consuming and requires an expert to prepare the same, which also involves cost.Sometimes budget reports might manipulate or hide some information that can be useful for decision-making.Anyone can blame others if the budgeted report is not achieved.Sometimes it is misused by the department.

For example, suppose an organization fixed an expense budget for a particular department, say $ 10000. They will use all the unnecessary amounts knowing that a fund is available.

Limitations

It is based on assumption and can not provide practical information.The budget report prepared in the current year might change due to rapid changes in the market.It sometimes involves manipulation to keep senior management happy.It focuses only on financial matters of the future; it does not provide other information such as consumer behavior, market conditions, or product quality.It does not provide any information about an existing situation.

Important Points

The budget report is prepared based on assumptions, and there will be a high chance for variations in the report. Therefore, a report should be prepared based on a realistic approach to overcome this. Furthermore, in case of any changes in the report, management should be brought to notice.

Conclusion

This report is highly important for every organization to achieve its long-term goal. Proper training and skill must be given to employees for Budget report preparation. Most of the decisions of an organization are taken based on the Budgeted report.