Our article on the discretionary budget because it is one of the important topics for business owners.
We have defined the most important terms related to discretionary budgets, their objectives and principles, and how to prepare them
, along with mentioning their types and explaining their relationship to accounting.
This article has included an extensive explanation so that the information reaches the reader in a good and correct manner
, because we are in CFOONLINE We care about the interests of our customers above all.
What is the estimated budget?
Estimated budget is the process of determining possible costs and revenues for a specific period of time in the future,
and it is usually used for financial planning for companies, institutions and governments. It is known in English as (Budget)
Estimated budget target
The estimated budget aims to anticipate the future expenses and revenues of the organization,
and thus determine the resources that will be available to it in the future and how to use these resources efficiently.
Principles of discretionary budget
There are several principles that must be followed when preparing the estimated budge, namely:
- Accuracy: The information used in the budge should be as accurate and reliable as possible.
- Realism: The budge must be realistic and logical, and based on reliable information and realistic expectations of future events.
- Comprehensiveness: The budge should cover all aspects of the business operation, including identifying potential sources of revenue and identifying all potential costs.
- Flexibility: The budge must be flexible and subject to change, including updating it when needed.
- Effective Management: The budge must be used to efficiently manage resources, set priorities and make the right financial decisions.
- Rapid Response: The budge must be able to respond quickly to emergency financial challenges or unexpected events.
- Disclosure and Transparency: The budge must be open and transparent, and information about it must be accessible to all, including stakeholders, shareholders and employees.
Preparing estimated budgets
The rules for preparing estimated budgets follow several steps, namely:
- Setting financial goals: You must define the financial goals that you want to achieve in the specified period, such as increasing revenues or reducing costs.
- Determine the financial sources: The available financial sources must be identified, such as revenues from sales, loans or investments.
- Estimating costs: Various costs related to specific financial objectives, such as raw material costs, wages, and advertising and marketing costs, must be estimated.
- Budget analysis: The budge must be analyzed to determine whether it covers all costs and meets the specified financial objectives.
- Performance appraisal: The financial performance of the organization should be regularly evaluated to see if it is meeting its financial objectives and the budget updated when necessary.
If you need any assistance in preparing the budget, we at CFOONLINE and our staff of specialized accountants are ready to provide all our services related to accounting,
as the accountant helps verify the validity of the financial accounts and budge for the project,
and analyzes and interprets the financial data to help the client make the right decisions.
How to prepare an estimated budget PDF
To prepare the estimated budget in PDF format, the following steps can be followed:
- Defining the main categories of the budget: defining the main sections of the budge such as revenues, expenses, investments, and debts.
- Determine the exact details: The exact details must be specified for each major category in the budge, such as revenues from sales, rents, or taxes, and expenses from salaries, wages, rents, administrative supplies, advertisements, and others.
- Determining the financial amounts: The expected financial amounts are determined for each category and converted into a percentage or a financial amount.
- Create the table: The Excel table is created, the columns and rows are named by categories, departments, months or fiscal years.
- Data entry: The financial amounts are entered for each category and in the specified time periods, and the totals and the remainder are calculated.
- Preparing Financial Statements: Financial statements can be created in PDF format through programs such as Adobe Acrobat or Microsoft Word, and the table is included in the financial statement.
- Printing: The final estimated budge can be printed as a PDF file and saved on the computer or printed on paper.
It should be noted that the estimated budge must be prepared carefully and in an
understandable and transparent manner to clarify all details of revenues, expenses, investments and debts clearly and specifically.
Types of discretionary budget
Types of discretionary budget include:
- Fixed budget: It is the budge that depends on determining the levels of expenditures and revenues in the coming years based on fixed and continuous estimates of factors of production, economy and prices.
- The variable budget: It is the budge that depends on determining the levels of expenditures and revenues in the coming years based on variable estimates of factors of production, economy and prices,
which means that plans and costs will be modified in the event of any changes in these factors.
- Time budget: It is the budge that depends on determining the levels of expenditures and revenues in the coming years based on expectations of price changes, inflation and interest during the specified period of the BUDGET.
- The basic budget: It is the BUDGE that depends on determining the available resources and distributing them according to the specific goals in the specified period. It includes defining specific goals and plans and distributing the available resources based on priorities.
- Additional budget: It is the BUDGE that depends on allocating additional resources to meet the additional objectives specified during a specific period of time.
This budget is usually used in the event of unforeseen requirements or in the event of events beyond control.
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What are the types of government budgets?
There are several types of government budgets, and among these types:
- (Traditional Budget):
It is the BUDGE that depends on the annual planning of government revenues and various expenditures. This BUDGE is the most common and contains many defects and problems that governments face in implementing it. - (Performance Budget):
This budge is based on evaluating the government’s performance in achieving the set goals, and includes allocating resources based on past and expected future performance. - (Program Budget):
This budge is based on the allocation of resources according to specific programs and specific goals, and is usually used for large and complex projects that need careful planning. - (Zero-based Budget):
This budge is based on evaluating all expenses and spending from scratch, in order to set priorities and improve resource planning. - (Digital Budget):
Cloud computing and artificial intelligence technologies are used to analyze financial data and plan resources, and they help improve efficiency and transparency in managing financial resources.
What is the importance of discretionary budgets?
Estimated budgets are an important tool in business and financial management,
as they help plan and control expected expenses and revenues for a certain period, and help make the right financial decisions.
Among the importance provided by discretionary budgets are:
- Planning: Estimated budgets enable organizations and individuals to plan for future expenses and prepare for expected costs. Thus, organizations and individuals can maintain financial discipline and avoid unnecessary expenses.
- Control: Discretionary budgets help you control spending, set priorities, and focus on essential expenses. In this way, unplanned extra expenses can be reduced and ballooning expenses prevented.
- Improving liquidity management: Discretionary budgets help determine whether available financial resources are sufficient to cover future expenditures, and then determine future cash needs and improve liquidity management.
- Achieving goals: Discretionary budgets can be used to set financial goals and adjust investment plans and other processes that help achieve financial goals.
- Evaluation: Estimated budgets allow organizations and individuals to evaluate their financial performance, determine the extent to which financial goals are achieved, and identify weaknesses and improve them in the future.
The relationship of the estimated budget to accounting
Estimated budgeting and accounting are among the important financial tools that are used in business management and in analyzing the financial performance of companies and institutions.
The relationship between them is greatly linked and we notice this in the following table:
|
The relationship of the estimated budget to accounting |
|
|
Accounting |
Budget |
|
Accounting deals with the actual financial information that a company produces |
The discretionary budge is the company’s future financial plan |
|
Accounting is concerned with documenting, analyzing and recording the financial events that the company goes through. Accounting provides accurate financial information about the financial operations that took place in the previous period and compares them with the estimated budget to determine whether the company has achieved its financial goals or not, and to identify the strong and weak points in the company’s financial performance. |
The discretionary budge aims to plan and direct the financial activities of the company and estimate revenues, expenses, profits and losses during a specific period of time.
The importance of the discretionary budge is to enable the company to control expenses and achieve the specified financial and strategic goals. |
Using discretionary budgeting and accounting together helps to better manage financial risk and identify areas
where the company’s financial performance can be improved.
Thus, the discretionary budge and accounting are closely related to achieving the financial goals and analyzing the company’s financial performance.
Disadvantages of discretionary budget
There are several drawbacks to the discretionary budget, the most prominent of which are:
- May be inaccurate: The discretionary budget depends on expectations of savings and spending in the future, and these expectations may not be accurate due to sudden changes in economic and political conditions.
- May cause implementation difficulties: There can be a mismatch between the available resources and the planned expenditure in the budge, which leads to difficulties in its implementation.
- May need frequent adjustments: Economic and political conditions can change rapidly, requiring frequent adjustments to the discretionary budge, and this can cause instability in approved plans and projects.
- May lead to increased government debt: An overestimation of revenue and expenditure in the discretionary budge can lead to an increase in government debt, especially if planned projects are implemented ineffectively.
- May lead to a reduction in spending in vital sectors: Sometimes, a discretionary budge may lead to a reduction in spending in vital sectors, such as education and health, and this may affect the quality of services provided to citizens.
What is the difference between budget and budget?
There is not much difference between the terms “budge” and “budget.”
Both words mean calculation and financial planning for a certain period, and they are used in many contexts to refer to the same concept.
However, the term “budget” may be used more broadly than “budget”.
- Budge can be used to refer to the financial plans of individuals, families, businesses, or governments.
- While the term “budge” can be more specific and focus more on the annual government financial budget, which usually includes government revenues and expenditures, debts, and budget deficits or surpluses.
- In general, the two terms can be used interchangeably in most cases, but there can be some differences in the exact usage of the two words depending on the specific context.
Estimated budget law
This law is based on identifying and planning expected expenditures and expected revenues during a specific period of time,
and on this basis, financial resources are allocated according to the priorities and specific objectives.
The estimated budge is usually prepared by a team of accountants and financial experts,
and it usually includes estimates of expected revenues and expenses for the coming period,
with priority given to the most important expenditures and priority in financing. Specific objectives that are compatible with the vision of the institution
and that are based on economic, social and political assessments are also determined.
Estimated budget and its relationship to planning and control
We can explain the relationship between them through several points:
- The estimated budge supports the planning process, where the expected costs and revenues of the organization are estimated, and the goals and strategies necessary to achieve these goals are defined.
- In addition, the estimated budget plays an important role in the control process, as the actual performance results are compared with the estimates included in the budge. And when the actual results differ from expectations, the necessary actions are taken to improve performance and achieve the set goals.
- Thus, the discretionary budget is closely related to the planning and control processes, as it helps in planning resources and setting goals, and enables monitoring of performance and taking the necessary measures to improve it.
What is the estimated budget for the project?
Project budgeting is the process of estimating the financial costs and resources required to complete the project
. The estimated budge is prepared at the initial planning stage of the project and is one of the main factors for deciding on the financial feasibility of the project.
note:
It is worth noting that the estimated budge for the project is not considered final, as the actual size of the project and the required costs may change
when the implementation of the project begins and the emergence of some expected problems and challenges.
Therefore, the estimated budge of the project must be re-evaluated periodically to ensure its compatibility
with the actual status of the project and to avoid any potential problems in the future.
What is a budget report?
A budge report is a detailed document that contains details of financial resources and expected expenditures for a specific period of time
, and aims to show how funds are allocated and used to achieve specific goals.
We will now talk about several models and examples of discretionary budgets
First: Estimated budget form for a contracting company
An estimated budget template for a contracting company can be prepared using some of the following steps:
- Determining expected revenues: Contracting company revenues can be estimated by analyzing current contracts, estimating expected future contracts, and potential revenues from existing and future contracts.
- Cost estimation: All costs associated with contracting work must be determined, including labor costs, raw materials, machinery, equipment, rental costs and other services.
- Calculating Expected Profit: After calculating the expected revenue and costs, the expected profit can be calculated by subtracting the costs from the revenue.
- Checking the budget: It must be verified that the sum of the revenues equals the sum of the costs, including the expected profit, and if there is a difference, the numbers must be reviewed and the errors searched for.
- Explanation of variables: All variables that could affect the budget must be clarified, such as market fluctuations, the effects of general economic conditions, and other factors.
Here is a simple discretionary budget template:
| clause | Amount (in dollars) |
|---|---|
| Revenues | 500,000 |
| costs | 350,000 |
| expected profit | 150,000 |
This form should be updated regularly to reflect changes in expected revenues, costs and profits.
Second: Estimated budget for production
Estimated production budgeting is the process of determining the amount of products or
services to be manufactured or provided during a specified period of time such as a fiscal year, quarterly, or monthly.
This budge is prepared based on forecasts of demand for products or services and the company’s ability to produce them.
The estimated production budget includes several elements such as:
- The expected quantities of raw materials and other ingredients that are used in the manufacture of the product.
- Expected quantities of production and required stock of raw materials and finished products.
The estimated budge for production is prepared in cooperation between the Production Department and the Planning and Finance Department in the company.
This budge is used as a tool for production planning, determining the volume of production that the factory can bear based
on the available resources, and evaluating actual performance against the specified plans.
Third: Estimated sales budget
Sales budgeting is the process of estimating the revenue that will be generated from the sale of products or services over a given period of time.
This budge aims to determine expected revenues and direct marketing, production and financial efforts in line with those expectations.
The estimated sales budge is prepared according to the following:
- Market analysis and study of the demand for products or services provided by the company.
- Estimating expected prices and expected sales volume.
- Other factors such as competition, costs, and general economic factors that could affect projected revenue are considered.
After preparing the estimated sales budget, it is compared with the actual revenues achieved in the previous period,
and the necessary adjustments are made if necessary.
This budge can also be used for:
- Company strategic planning
- Setting sales targets
- Determine the action plans needed to achieve those goals.
Fourth: The estimated budget of the treasury
The Treasury’s discretionary budge is an important tool for effective money management, as it enables institutions and governments to:
- Planning expenses and allocating resources in a controlled manner.
- The budget helps to identify funding sources such as:
- Taxes, fees, and borrowing
- Determine the strategic priorities of the institution or government.
Institutions and governments should periodically assess the Treasury’s discretionary budge,
and adjust it according to expected changes in market and economic conditions.
The budge must be implementable and consistent with the overall goals and strategies of the institution or government.
Fifth: Estimated budget for expenditures
Expense discretionary budge is used to plan and manage financial resources for companies, institutions and individuals.
They reflect the expenses that can be incurred and include forecasts for various revenues and expenses.
To prepare the estimated budget for expenditures, the following steps must be taken:
- Determine the financial goals for the coming period and determine the expected revenues.
- Determine the expected expenses, including wages and salaries, rents, production costs, marketing, management costs, and other expenses.
- Evaluating the expected costs of expenses and reviewing them periodically, in order to determine whether the estimated budget for expenses is compatible with the company’s objectives.
- Take the necessary measures if the estimated budget for expenditures does not comply with the specified financial objectives, such as reducing expenses or increasing revenues.
- Review the estimated expenditure budge periodically to update and adjust it according to changes in economic and financial conditions.
Preparing the estimated budget for expenses requires good planning and analytical skills
and a deep understanding of financial and economic information,
and it must be done accurately and carefully to achieve the specified financial goals.
Sixth: The estimated budget of a company
The estimated budge of a company consists of financial forecasts for the next fiscal year, which includes the company’s revenues, costs and expected profits.
The estimated budge is prepared based on available information about the company’s financial performance in previous years, and expected changes in the market, the economy, and the company’s industry.
The budge begins with projections of the company’s revenues, and the expected sources of income,
such as sales, services, and other revenues, are identified.
Next, the expected costs of the company are determined,
such as the costs of raw materials, labor, rents, taxes, and general, administrative and marketing expenses.
Finally, the company’s expected profits are calculated, which depend on the revenue and cost differences. A discretionary budge can be used to make important financial decisions, such as determining target sales, expected costs,
and the investments needed to achieve specified financial goals.
Companies must constantly re-evaluate the budge to update its forecasts based on changes in the market, the economy, and the company’s industry,
and to be able to identify factors that affect financial performance and take the necessary measures to achieve the set financial goals.
Seventh: The estimated budget in banks
The discretionary budge in banks consists of an estimated analysis of expected revenues and expenditures during a specific period of time.
This budge is used to set financial goals, plan expenditures, and manage funds in the bank.
The estimated budget usually includes several elements, including:
- Revenue Estimation: It is the process of estimating the amount of money that will be earned from the various activities of the bank, such as interest due on loans and deposits, banking services fees, and other activities.
- Estimating expenses: It is an estimate of the amount of money that will be spent on the various activities of the bank, such as wages and salaries, infrastructure and maintenance costs, advertising and marketing costs, and other expenses.
- Financial planning: It is the process of analyzing expected revenues and expenditures, defining financial goals and the resources required to achieve these goals, planning expenditures and managing funds in the bank.
- Performance review: It is the process of regularly reviewing the estimated budge to evaluate the bank’s financial performance, and to see if revenues and expenditures are in line with expectations, and to take the necessary measures in case of any discrepancies.
In short, the discretionary budge in banks is an important tool for setting financial goals, spending planning and money management,
and helps in improving the bank’s performance and achieving targeted profits.
Eighth: the estimated budget in the institution
Estimated budgeting (or preliminary budgeting) is the process of determining an organization’s operating costs
and projected revenues over a specified period (usually a fiscal year),
and is critical to the success of any organization.
A discretionary budget aims to direct an organization’s spending and ensure that allocated expenditures are in line with projected revenues.
To determine the estimated budge, projected costs and revenues are estimated for each part of the organization, such as:
- production and marketing.
- Sales and distribution.
- Administration, maintenance and repairs.
It is then determined whether these costs are in line with expected revenues.
The estimated budge is usually prepared by the financial team in the organization, in cooperation with other departments,
and is updated and reviewed periodically. The discretionary budget helps:
- Determine the goals of the organization.
- and directing spending.
- and planning for the future.
- It also helps in identifying the strengths and weaknesses of the organization’s performance.
- and direct investments in the future.
Ninth: The estimated budget for a contracting company
Preparing budgets for a contracting company requires many factors to be considered. The most important of these factors are:
- Determining the company’s objectives: The main objectives of the company must be defined and the growth and expansion plans that the company aims for.
- Evaluation of proposed projects: The projects that the contracting company should undertake must be identified and the feasibility of these projects should be evaluated from a financial and operational point of view.
- Determining the financial sources: The financial sources available to the company must be identified, including bank loans, contributions, and the expected income from the proposed projects.
- Determining costs: The expected costs of the proposed projects must be determined, including the costs of labor, materials, machinery, insurance, and taxes.
- Determining revenues: The expected revenues from the proposed projects must be determined and the demand for the services provided by the company should be estimated.
- Spending control: Spending must be carefully monitored and financial and physical resources managed effectively to maintain profitability and improve company performance.
- Performance evaluation: The company’s performance must be regularly evaluated, strong and weak points in the company’s operations should be identified, and actions necessary to improve performance should be determined.
Estimated budget as a management control tool
Discretionary budge are one of the basic tools used by managers and financial officials to monitor the management of organizations and companies.
When the organization sets the estimated budge, the expected savings and spending are determined for the specified financial period,
and then these numbers can be compared with the actual results that were achieved during the specified period.
Reporting budget functions
The estimated budget is an important tool for financial and administrative planning, and it performs several functions, including:
- Determining financial goals: Estimated budget help in defining the financial goals of the institution and determining the extent to which these goals are achieved in the next financial period.
- Expenditure planning: Discretionary budge help in planning expenditure and determining the financial sources that must be obtained to implement the plans.
- Determining the expected financial return: Estimated budge enable the determination of the expected financial return and the time range in which the institution can obtain this return.
- Prioritization: Discretionary budge help in setting priorities and identifying activities that need to be taken care of in the first place.
- Cost control: Discretionary budgets enable costs to be controlled and adjusted in line with the set budge.
- Analysis of financial performance: Estimated budge enable the analysis of financial performance, identify the strengths and weaknesses of the organization and take the necessary measures to improve performance.
How to review the estimated budget
Estimated budge are usually reviewed after their preparation to ensure their correctness and completeness,
and to determine their compatibility with the company’s objectives and strategic plans.
Here are some steps that can be followed to review the estimated budget:
- Ensuring the correctness and completeness of the information: It must be verified that all data and figures included in the budge are correct and reliable, and that all expected expenses and revenues are fully included.
- Budget review with the budget team: Reviewers should meet with the budget preparation team to discuss any questions or issues related to the budget. It must be ensured that all choices and assumptions used in preparing the budge are reasonable and objective.
- Identify risks and opportunities: The budge should be reviewed to identify risks and opportunities that may affect budge implementation. These risks and opportunities can be identified by reviewing market expectations and current economic events.
- Compare the budget with previous years: The budge can be reviewed with the company’s previous budgets to identify any changes or discrepancies in expenses and revenues.
- Determining the main objectives and indicators: Key indicators can be identified to measure the performance of the budget, such as average spending or average revenues.
Estimated budget form
The format of discretionary budgets can be designed differently depending on the specific needs of the company or organization.
However, here are some of the basic elements that a discretionary budget might include:
- Revenue: The expected revenue for the specified financial period must be estimated, and it can be detailed according to the different sources of revenue.
- Costs: Projected costs for the financial period must be estimated and can be broken down by type (eg fixed costs and variable costs) and categories (eg raw material costs, wages and rents).
- Profit or Loss: You must calculate the net profit or loss for the specified financial period, which is obtained by subtracting the costs from the revenues.
- Sales forecasts: Future sales forecasts can be included in budgets to determine future spending and plan growth.
- Investments: The costs of future investments can be included in budgets to determine future costs and plan for growth.
- Cash Flow: Estimates of future cash flows can be included in budgets to determine future liquidity availability.
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An example of an estimated budget
Here is an example of a discretionary budget:
We assume that you have a project to build a new house, which contains three bedrooms, two bathrooms, a hall, a kitchen and a dining room. Project budgeting can be done as follows:
- Total cost of the project: The total cost of the project must be determined, which is the amount needed for the project as a whole. For example, the total cost of building a home might be $500,000.
- Determine the details of the project: The details of the project must be determined and the cost of each part should be estimated, such as walls, ceilings, floors, doors, windows, bathrooms, kitchen and rooms.
Since we are talking about a new house consisting of three bedrooms, two bathrooms, a hall, a kitchen and a dining room, the details can be divided as follows:
3 bedrooms at a cost of $50,000 per room, equivalent to $150,000.
Two bathrooms at a cost of $20,000 per bathroom, equivalent to $40,000.
Hall at a cost of $70,000.
$60,000 kitchen.
Dining room at a cost of $30,000.
- Reserves: A certain percentage of reserves should be added to secure any unexpected costs during project implementation.
- This percentage can be determined based on previous experience in projects
Solved exercises in estimated budgets
Some solved exercises in estimated budgets:
- A budget of $10,000 was set to purchase new equipment for the company. The budge was divided as follows: $4,000 for computer equipment, $3,000 for printing equipment, and $3,000 for kitchen equipment.
The purchase of computer equipment was completed in the amount of 3800 dollars, and the purchase of printing equipment in the amount of 2700 dollars, how much money is left to buy kitchen equipment?
the solution:
- Total budget: $10,000
The amount for purchasing computer equipment: $3,800
The amount of purchasing printing equipment: $2,700
Remaining amount: 10,000 – (3,800 + 2,700) = $3,500
Therefore, the remaining amount for the purchase of kitchen equipment is $3,500.
- Let’s say you want to prepare an estimated budge for your company for the next year. You must determine the expected costs and revenues for the new year.
You can use the following formula to determine your estimated profit: Estimated Profit = Estimated Revenue – Estimated Costs You might use a table like the one below to organize your information:
| Source | the amount |
|---|---|
| Estimated revenue | $X |
| Estimated costs | $Y |
| Estimated profit | $X – $Y |
We will now demonstrate a practical exercise:
Ahmed wants to prepare an estimated budge for his new project. He determined the estimated costs as follows:
| Source | the amount |
|---|---|
| rent | $500 |
| salaries | $1,000 |
| Raw materials | $800 |
| taxes | $200 |
| Other expenses | $300 |
| the total | $2,800 |
Determine the estimated revenue needed to generate an estimated profit of $500.
the solution:
Estimated profit = estimated revenue – estimated costs
$500 = Estimated Income – $2,800
Estimated revenue = $3,300
Estimated budget templates ready
We will review some ready-made models
Excel budget template
Estimated budgets pdf
You can download it in pdf : from here
Estimated cash budget pdf
You can download it in pdf format from here
In conclusion, we have clarified the meaning of the discretionary budge and its impact on the success of the business,
and we have explained the difference between it and accounting and the budge, with the addition of examples, solved exercises,
and pdf formats ready for the discretionary budge,
and we are ready in our office CFOONLINE, the approved financial office in Saudi Arabia,
to receive any inquiries related to the discretionary budge and provide free consultations online Line.
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