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Certain specialists in the field have agreed upon the two most
important principles that the budget, whether it is a governmental or
corporate one, should follow. One of the two principles consists in the
fact that the budget should be designed as a tool for planning and
monitoring (Andrews, 2007).
Similarities between the Federal Budget and the Corporate One
As mentioned above, the two types of budgets are very distinct in
areas like the development process, budget application, or decision makers
involved. However, there are a series of similarities between the two types
of budgets that cannot be overlooked.
For example, both types of budgets are subjected to modifications, in
case certain unpredicted situations emerge, requiring a new adaptation of
the budget. It is more difficult to modify the federal budget, given the
repercussions this action has and given the fact that federal revenues
cannot be modified in accordance with modifications required by the budget.
It is more a matter of fund reallocation.
Also, in both cases, the budget for one year should be considered as
an entirely different tool compared to that of the previous year. This is
because the economic, social, and political environments change, they
create new conditions and circumstances, which determine the need for a
different budget design.
Whether we refer to governmental or corporate situations, the budget,
once developed, must be consulted daily, or as often as the situation
requires it. In case the budget is not intensely monitored, it because a
slightly useless tool.
One of the most important traits that the two types of budget have in
common is represented by the fact that the budget must be a realistic
representation of the situation, its opportunities and threats (UCLA,
2009). If the organization in case builds a budget that presents an
optimistic variant, even if it may sound better, it would not help any of
the parties involved.
Types of Budget
The most important types of budgets in the case of private operators
include: sales budget, production budget, cash flow budget, marketing
budget, project budget, revenue budget, and expenditure budget (Bowles,
2009). The sales budget is intended to estimate the company's sales for a
given future period of time. It is estimated in both units and dollars,
most of the time, in order Based on this budget, the company is able to
determine its sales targets.
The production budget is characteristic for the companies that are
specialized on production. Following the sales budget, the production
budget estimates the number of units that the company must produce in order
to meet the sales targets. However, the most important feature of this type
of budget is represented by the fact that it estimates the cost for each
The cash flow budget is one of the most important types of budget. It
reflects the estimated future cash revenues and expenses (Harvard, 2007).
Such a budget type is not designed for medium or long periods of time,
given the imminent cash flow fluctuations.
The marketing budget obviously is designed in order to forecast
expenses used in promoting, advertising, and generally marketing the
product or service in case. The project budget only applies in the case of
a specific project. Its purpose is to determine expenses with the workforce
and material resources.
The revenue budget is characteristic for the governmental budget, as
it reflects the level of revenues the government is likely to benefit from
over one fiscal year. This budget also determines the expenditures covered
by the mentioned revenues. The expenditure budget reflects the forecasted
units that the company or government is expected to acquire.
There are several other types of budget in accordance with their
purpose or timeframe, like: business set up budget, capital budgeting, zero
based budgeting, partial budgeting, performance based budgeting,
incremental budgeting (EconomyWatch, 2009).
1. Four Principles for the Federal Budget (2009). Involved
Voters. Retrieved October 16, 2009 from
2. Budgeting (2001). CIVICUS: World Alliance for Citizen
Participation. Retrieved October 16, 2009 from
3. Bowles, Marc (2009). Budget Types. The Institute for Working
Futures. Retrieved October 17, 2009 from
4. Types of Budget (2009). EconomyWatch. Retrieved October 17,
2009 from http://www.economywatch.com/budget/types/.
5. Budget categories (2007). Harvard Business School Publishing.
Retrieved October 17, 2009 from
6. Thompson, Charles (2009). Lawmaker wants to punish decision-
makers for budget delays. The Patriot News. Retrieved October
17, 2009 from
7. Principles of Financial Management (2009). UCLA Corporate
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Budgeting. Fieldstone Alliance. Retrieved October 17, 2009
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S. Government to make future or immediate monetary outlays. In the second subcomponent, the reporting and outlay phase lasts for the duration until the funds are canceled or until the funds are totally disbursed. One should note that these cancellations are in no way connected with cancellations that are connected with budget reductions. These are a separate congressional activity (ibid). Sometimes spending adjustments are needed during the fiscal year. They may
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The first advantage is that it is easy. The math associated with the percentage of sales method is very simple to execute. The underlying premise of this method is that most of the items on the income statement and on the balance sheet will vary with sales. In addition to direct variable costs, such as cost of goods sold, indirect costs will also vary roughly in line with sales.
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"MIRR: A better measure." Business Horizons. 51(4), 321-329. Cited in: http://econpapers.repec.org/article/eeebushor/v_3a51_3ay_3a2008_3ai_3a4_3ap_3a321-329.htm McClure, B. (n.d.). "Taking Stock of Discounted Cash Flow." Investopedia. Cited in: http://www.investopedia.com/articles/03/011403.asp?partner=answers "Modified Internal Rate of Return." (2009). Cited in: http://www.thinkanddone.com/finance/mirr.html Parrino, R, & D. Kidwell. (2009). Fundamentals of Corporate Finance. (Vol. 1, Ed.). Wiley Custom Solutions. Smart, S. And WL. Megginson. (2008). Corporate Finance. Thompson Learning. Sullivan, A. And S. Sheffrin. (2003). Economics: Principles in Action. Prentice-Hall. The IRR is the rate of return that makes the
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