HISTORICAL REVIEW
The theoretical and practical foundations of the budget, as a planning and control tool, had their origin in the government sector at the end of the 18th century when the spending plans of the kingdom were presented to the British Parliament and guidelines were given on their possible execution and control.
From a technical point of view the word is derived from Old French bougette or bag. This meaning was later refined in the English system with the term common knowledge budget, which is called budget in our language.
Between 1912 and 1925, and especially after the First World War, the private sector realized the benefits that the use of the budget could generate in terms of cost control, and allocated resources in those aspects necessary to obtain adequate profit margins during a period of time. determined operating cycle. During this period, industries grow rapidly and the use of appropriate business planning methods is considered.
The role played by budgets is highlighted by prestigious modern writers who point out the vitality of forecasts related to cash management.
DEFINITION
A budget can be defined
such as the orderly presentation of the expected results of a plan, project, or strategy. By the way, this definition makes a distinction between traditional accounting and budgets, in the sense that the latter are oriented towards the future and not towards the past, even though in their function of control, the budget for a previous period can be compared with actual (past) results.
Budgeting as an analogous word for this study results from making the anticipated calculation of the cost, expenses and income or income of a business, budgets are made based on the accumulated knowledge that the organization has of the specific activity of the company, of the changes and forecasts on quantities and prices, the budget period is made corresponding to the financial-fiscal-accounting year.
ROLE OF BUDGETS
The functions that budgets perform depend largely on the direction of the company itself. The needs and expectations of managers and the use they make of budgets are strongly influenced by a series of factors related to the managerial background and the business system.
Ideally, Management expects the budget function to provide:
⚫ An analytical, accurate and timely tool.
⚫ The ability to claim performance.
⚫ Support for resource allocation.
⚫ The ability to monitor actual ongoing performance.
⚫ Warnings of deviations from forecasts.
⚫ Early indications of opportunities or risks ahead.
⚫ Ability to use past performance as a guide or learning tool.
⚫ Understandable concept, leading to consensus and support for the annual budget.
IMPORTANCE
Organizations are part of an economic environment in which uncertainty predominates, so they must plan their activities if they intend to sustain themselves in the competitive market, since the greater the uncertainty, the greater the risks to assume.
The budget emerges as a modern tool for planning and control by reflecting the behavior of economic indicators such as those listed and by virtue of its relationships with the different administrative, accounting and financial aspects of the company.
CLASSIFICATION OF BUDGETS
ACCORDING TO ITS FLEXIBILITY
Rigid, Static, Fixed or Assigned
They are generally made for a single level of activity. Once this is reached, the adjustments required by the variations that occur are not allowed. In this way, an early control is carried out without considering the economic, cultural, political, demographic or legal behavior of the region where the company operates. This form of advance control gave rise to the budget traditionally used by the public sector.
Flexible or Variable
Flexible or variable budgets are prepared for different types of activity and can be adapted to the circumstances that arise at any time. They show the size-adjusted revenues, costs and expenses of manufacturing or commercial operations. They have wide application in the field of cost budgeting, manufacturing, administrative, and sales overhead.
ACCORDING TO THE PERIOD COVERED
Short term
Short-term budgets are planned to meet the one-year cycle of operations.
Long-term
The development plans of the State and large companies are located in this field. The general guidelines of each plan are usually based on economic considerations, such as job creation, infrastructure creation, fight against inflation, diffusion of social security services, promotion of savings, strengthening of the capital market, capitalization of the financial system or, as has happened recently, mutual opening of international markets.
ACCORDING TO THE FIELD OF APPLICATION
Operational or Economic
It includes the budgeting of all activities for the period following the one in which it is developed and whose content is often summarized in a projected profit and loss statement.
Financial
They include the calculation of items and / or items that fundamentally affect the balance sheet. In this case, it is convenient to highlight that of the cash or treasury and that of capital, also known as capital expenditures.
ACCORDING TO SECTOR
Private Sector Budgets
The budgets of the public sector quantify the resources that the normal operation, investment and service of the public debt of the agencies and official entities require. When making the estimates
Budgetary variables are contemplated such as the remuneration of the civil servants who work in government institutions, the operating expenses of the state entities.
Public Sector Budgets
They are used by private companies as a basis for planning business activities.
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