Visit to Eravur Municipal Council

1. DIFFERENT TYEPES OF BUDGETS
AND PURPOSE OF CLASSIFYING
BUDGETS IN DIFFERENT TYPE
ORGANIZATIONAL VISIT TO
ERAVUR URBAN COUNCIL

2. OUR TEAM MEMBERS

3. GROUP NO - 05
NO NAMES REGISTRATION NO
01) M.B.M. INFAZ EU/IS/2011/MS/112
02) R.M.I.P. RATHNAYAKA EU/IS/2011/MS/11
03) G.W.K.P.S. KALUPAHANA EU/IS/2011/MS/12
04) B.D. GAYAN EU/IS/2011/MS/41
05) S.L.M. THASREEK EU/IS/2011/MS/62
06) A.A.C. KUMARI EU/IS/2011/MS/63
07) C. CHANTRAMATHAN EU/IS/2011/MS/89
08) A. SUJEEKARAN EU/IS/2011/MS/90
09) F.M. RUSHAN EU/IS/2011/MS/113
10) E.Y.N. MUHANTHIRAM EU/IS/2011/MS/114

4. 1. Introduction to Budget.
2. Classification of Budgeting (Different Types of Budgeting and Purpose,
Pros & Cons of Preparing Different Types).
 According to Functions
 Sales Budget
 Production Budgeting
 Cost of Production Budget
 R&D Budget
 Cash Budget
 Master Budget
 According to Flexibility
 Fixed Budget
 Flexible Budget
Contents..

5.  According to Time
 Long Term Budget
 Short Term Budget
 According to How the Budget is Prepared
 Zero Based Budgeting
 Incremental Budgeting
 Imposed Budgeting
 Participatory Budgeting
 Rolling Budget
3. Implication of Different Types of Budget & budgeting process in Eravur Urban
Council.
 The Civic Budget Concept.
 The Initiative of Eravur Urban council
 Participatory Budgeting
 The Pradeshiya Sabha/Urban Council Budget Cycle
4. Conclusion.
Cont…

7. INTRODUCTION TO BUDGET
Definition:
A budget is a set of interlinked plans that quantitatively describe an
entity's projected future operations. A budget is used as a yardstick against
which to measure actual operating results, for the allocation of funding, and as
a plan for future operations.

8. CLASSIFICATION OF BUDGETING
Types of Budgets:
There are many types of budgets. They may be classified into several basic
types. Most organizations develop and make use of three different types of
budgets: operating budgets, capital expenditures budgets, master budget,
and financial budgets. But types of budget may vary according to classification
criteria used.

9. What is the purpose of classifying the budget in
different types?
Budget classification is one of the fundamental building blocks of a sound budget
management system, as it determines the manner in which the budget is recorded,
presented and reported, and as such has a direct impact on the transparency and
coherence of the budget.
A budget classification system provides a normative framework for both policy
decision making and accountability. Classifying expenditures and revenues correctly
is important for
Policy formulation and performance analysis.
Allocating resources efficiently among sectors.

10. Ensuring compliance with the budgetary resources approved by the top-
management.
Day-to-day administration of the budget.
Once established on a sound basis, a classification scheme should not be substantially
changed unless there are strong reasons; a stable classification facilitates both the
analysis of trends in organizational policy over time and interdepartmental and
organizational comparisons.
Cont…

11. Classification according to Functions
 Sales Budget
 Production Budgeting
 Cost of Production Budget
 R&D Budget
 Cash Budget
 Master Budget

12. Sales Budget
A sales budget is a plan of a business' sales outlook
based on the number of units it expects to produce
within a specified budget period.

13. Production Budgeting
Production budget is the component of the
operating budget that determines the number of
units to be produced to meet sales and ending
inventory needs.
Required Production = Expected Sales + Expected Ending Inventory – Beginning Inventory

14. Cost of Production Budget
A manufacturing budget or cost of production budget is a set of three
budgets that estimate the cost of direct materials, direct labour, and
overhead for the number of units predicted to be produced in the
production budget.

15. Research & Development Budget
R&D budget is a tool for planning and controlling the research &
development cost. This budget helps in coordinating with company’s
other plans & projects.

16. Cash Budget
A cash budget is an estimation of a person's or a company's cash inputs
and outputs over a specific period of time.

17. Master Budget
A master budget is an expensive business strategy that documents expected future
sales, productions levels, purchases, future expenses incurred, capital investments,
and even loads to be acquired and repaid. In other words, the master budget
includes all other financial budgets as wells as a budgeted income statement and
balance sheet.

19. According to Flexibility
 Fixed Budget
 Flexible Budget

20. Fixed Budget
A fixed budget is a budget that does not change or flex when sales or some other
activity increases or decreases. A fixed budget is also referred to as a static
budget.

21. Flexible Budget
A flexible budget is a budget that adjusts or flexes for changes in the volume of
activity. The flexible budget is more sophisticated and useful than a static budget,
which remains at one amount regardless of the volume of activity

22. According to Time
 Long Term Budget
 Short Term Budget

23. Long Term Budget
They are concerned with planning the operations of a firm over a perspective of
five to ten years. They are usually in the form of physical quantities. In
preparing long term budget, market trend, changes in demographics, national
income, etc. play important role.

24. Short Term Budget
They are usually for a period of a year or two and are in the form of production
plan in monetary terms. The period should coincide with financial accounting
period to facilitate evaluation of financial statement.

25. Classification According to How the Budget is Prepared?
 Zero Based Budgeting.
 Incremental Budgeting.
 Imposed Budgeting.
 Participatory Budgeting.
 Rolling Budgeting.

26. Zero Based Budgeting
Zero-based budgeting is an approach to planning and decision-
making that reverses the working process of traditional budgeting.
A zero-base budget requires managers to justify all of their
budgeted expenditures, rather than the more common approach of only
requiring justification for incremental changes to the budget or the
actual results from the preceding year. Thus, a manager is theoretically
assumed to have an expenditure base line of zero (hence the name of the
budgeting method).

27. Incremental Budgeting
An incremental budget is a budget prepared using a previous period's budget or
actual performance as a basis with incremental amounts added for the new budget
period.
o The allocation of resources is based upon allocations from the previous
period.
o This approach is not recommended as it fails to take into account
changing circumstances
o Moreover it encourages "spending up to the budget" to ensure a
reasonable allocation in the next period. It leads to a "spend it or lose"
mentality.

28. Imposed Budgeting
A budget developed by top management
with little or no input from operating personnel; operating personnel are then
informed of the budget objectives and constraints.

29. Participatory Budgeting
Participatory budgeting (PB) is a different way to manage public money, and to
engage people in government. It is a democratic process in which community
members directly decide how to spend part of a public budget. It enables
taxpayers to work with government to make the budget decisions that affect
their lives.

30. Rolling Budgeting
A rolling budget is also known as a continuous budget, a perpetual budget, or
a rolling horizon budget. We will use the following example to explain the
meaning of a rolling budget

31. IMPLICATION OF DIFFERENT TYPES OF BUDGET & BUDGETING
PROCESS IN ERAVUR URBAN COUNCIL

32. A brief about Eravur Urban Council
 Eravur Urban council (EUC) is ranked in 3rd place among other urban councils island wide.
 The UC is comprised of 16 administrative GN divisions.
 The majority of the population is Muslims. The division has a population of 38,343. The highest
population exists at Michnagar GN division and the lowest is at Iyankerni GN division.
 Agriculture, business and fishing are the main economy of the people in the division.

33. Introduction to Local Government Budget.
 There are three organizations who prepare independently their own budget in Sri
Lanka. National Government, Provincial Council and Local Government. Eravur
Urban Council’s budget fall into third category.
 The budget is an essential tool for acknowledging the needs of people living in the
urban council.
 The important factor is that the Local Government Budget cannot be deficit one. It
should always tally the revenue with the expenditure

34. The Budgeting Process
The budgeting process commences in the month of April prior to the
next year’s budget preparation.
Local government budget is prepared initially by anticipating the
total revenue to be earned in the next year. Then they will estimate
expected expenditure for the period.
All the urban council member and the representatives of general
public will participate in budget debate prior to budget approval.
If the budget is approved by the Provincial Council, then it would be
implemented.

35. Participatory Budgeting and Budgeting process
of EUC
As we discussed earlier, the concept of participatory budgeting or imposed
budgeting is practiced in the process of preparing the Eravur Urban Council
Budget.
That is every personnel and general public ideas are taken in to consideration
and budget is prepared.
Once it is prepared, then it will be sent to provincial council for approval.

36. Zero Based Budgeting and Budgeting
process of EUC.
They use the concept of zero based budgeting.
The budget committee evaluate their every income sources using
Revenue Inspectors (RI) and corresponding Expenses from the
beginning without adding a certain percentage to its old budget.
Otherwise the whole budget prepared for next year would end up
in failure when they fails to meet budgeted revenue and
expenditure.

37. Urban Council Budget Cycle