Describe the different types of budgets. Provide examples for each type.

Question

What will be an ideal response?

Answer 1

The three most important types of budgets are (1) capital budgets, (2) operating budgets, and (3) cash flow budgets.
The capital budget reflects a business's plans for obtaining, expanding, and replacing physical facilities. It requires that management preplan the use of its limited financial resources for needed buildings, tools, equipment, and other facilities.
The operating budget is based on profit plans for the budget period. It contains a forecast of the amounts and sources of sales income and the materials, labor, and other expenses that will be needed to achieve the sales forecast.
The cash flow budget is a forecast of expected cash receipts and expected cash payments. It shows whether sufficient cash will be available for timely payment of budgeted expenses, capital equipment purchases, and other cash requirements. It also tells whether arrangements need to be made for external sources of cash, such as borrowing or owner investments.