Theory concepts of budgets

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* General budget

* Etymology and concept

* Concepts

* Budget Features

* Classification of the budget

* Conclusion


The objective of this research is to present a coordinated overview of the concepts that constitute the theory of budgets from the perspective of different authors and in an orderly set of characteristics.

It highlights key points regarding this issue as is its historical evolution, to today with the appearance of existing laws.

Discusses the objective of the budget and discussed the relationship between this and the administrative process.

Mention is made of the characteristics of the budget, from the formulation, through the presentation up to the application.

It argues the advantages and disadvantages of budgets, and emphasizes that it is the best tool for calculating average costs.

Not neglecting the budget classification, focusing on a different criteria, such as: For the type of company, its content, its form, its duration, the valuation technique, etc. It gives an overview of the features to meet so that it falls in a certain classification and discuss their roles within it.

The main terms and issues, will enable decision makers in enterprises have a conceptual base to guide.

The way it has been ordered, will clearly understand the basis and history of budgets.

General budget

Historical review of the budget

It is known that since the Babylonian empires, Egypt and Rome should plan activities in a manner consistent with climate change to take advantage of the rainy season and ensure food production. However, a relatively recent news of the theoretical and practical as a tool for budget planning and control had its origin in government secrecy in the late eighteenth century when the British parliament had expenditure plans of the kingdom and gave guidelines on possible execution and control.

From a technical standpoint, the word is derived from Old French bougette or bag. This acceptance trying to perfect the English language with the term budget, commonly used and is translated in our language as a prerequisite.

In 1820 France adopted the system in the government sector and the host United States in 1821 as an element of control over public spending and as a tool for officials whose job it was to budget to ensure the efficient functioning of government activities.

Between 1902 and 1925, especially after the First World War, the private sector noted the benefits that could generate or use of the budget on expenditure control, and to target resources to those aspects needed to obtain adequate profit margins for a given operating cycle. In this period the industry quickly and without thinking about the use of appropriate business planning methods. Private enterprise that speaks strongly of budgetary control, and the public sector comes even to approve a national budget law.

The technique continued its ongoing development, along with the development achieved by cost accounting.

In 1930, held in Geneva the first international symposium on budget control, which defines the basic principles of the system.

In 1948 the Department of the Navy of the United States submits the budget for programs and activities.

In 1961 Department of Defense United States works with a system of program planning and budgeting.

In 1965 the United States government created the Department of Budget and includes tools for planning and control system known as “planning for programs and budgets.”

In recent decades there have been many methods ranging from statistical projection of financial statements until the system “zero base” with which we have tried to set a series of “decision packages” to choose the most reasonable, and thus eliminate improvisation and unnecessary expenditures. In this regard it is said that in 1970 Peter Pyhr, at Texas Instruments, perfected the “zero base”, and then applied with some success as governor of the state of Georgia after U.S. President Jimmy Carter.The role of the budget include many prestigious modern writers, especially those who indicate that a forecast of cash management are important to prevent insolvency, to undertake a scientific evaluation of enterprises, solve problems early and assess liquidity and any investment. This has led to claims that the cash budget is one of the most valuable tools available to the financial management of any organization to make the liquidity policy, proceed with the timely investment of surplus funds, go to credit when money supply is not allow full coverage of commitments, and chart the dividend policy.

Etymology and concept

The word budget is composed of two Latin roots:

PRE = that means before or ahead of, and

COURSE = fact, formed, as seen below:

Therefore, budget means “before the fact.”

Because the budget presented today are an important tool for businesses, the word is pluralized budget, but nevertheless retained the discretion, he must assume the verb used to indicate respect to the formation of a budget, but in the nineteenth edition of the academic dictionary, the word budget is listed as is well said, for example, budgeted results, being the past participle.


In general terms, the word budget adopted by the industrial economy is:

“The art of planning and predetermining figures on the statistical basis and findings of facts and random phenomena.”

Referring to the budget as a management tool, you can be conceptualized as:

“The estimates are scheduled in a systematic way of operating conditions and results to be obtained by an organism in a given period.”

In sum, the budget is a set of predictions concerning a specified period. ”

Concept of the Spanish Royal Academy

Budget .- The amount of money calculated to meet the overheads of everyday life, travel, etc.

Budgeting .- Join the computation of income or expenses, or both resulting from a public or private business.

Budget Goal

The objectives of the budget are forecast, planning, organization, coordination and integration, management, and control, ie, comprise or are at all stages of the administrative process, and not all the authors on the subject, that only fall within the planning and control, just add the address. Then, in the initial structure, first citing a general context in the stage of the administrative process to immediately indicate the objectives of the budget at each stage:

* 1. In anticipation (to meet required)

Concept: Prepare ahead of time what time convenient for understanding the presumed needs.

Budget Goal: to have early, all suitable for the development and implementation of the budget.

* 2. In planning (what and how you gonna do)

Concept: The Way Forward, unifying systematization of activities, through which sets out the objectives of the company and the organization needed to achieve them.

The budget itself is essentially a plan that anticipates numerical operations that are intended to achieve, but of course that obtaining reasonably accurate results depend on the information, statistical essentially grows in the time of the estimate, as well as historical data, you must learn everything that tries to do, and somehow affect what is planned, that based on past experiences, can project the possible future results. Among the most common methods to achieve it, are the techniques and correlations.

Budget Goal: unified and systematic planning of possible actions, consistent with the objectives.

* 3. By organization (who will)

Concept: technical structure, the relationship that should exist between functions, levels and activities of human and material elements of an entity to maximize efficiencies within the plans and objectives.

Having established the overall objectives of the organizational structure may be defined in the department, indicating the characteristics of the units, such as sales, production, purchasing, finance, personnel, etc., According to specific needs. The clustering of activities is equivalent to setting the institution divisions and departments, leading them to draw as many functional departments budgets exist.

The development of individual budgets for each department can determine whether each of them performs the tasks set, using this case as a budget to change the business structure, if necessary.

Through the use of budgets within the company, through coordination or direction to be taken from them, is how you get the full gear of their total duties for departmental interdependence must exist.

Target budget: there is a proper, accurate, and functional structure and development of the entity.

* 4. In coordination or integration (which is made and formed in order, in particular, and in General)

Concept: development, maintenance, and achieving harmonious activities of the entity, in order to avoid imbalance between the different sections that make up your organization.

The influence and features coordinator of budgets, is a valuable aid in achieving this balance, as for the preparation of the budget of a department, it is necessary to build or help in the other, so that it is creating a dependency chain between them, thus gaining all the functions of the institution.

Budget Goal: close and coordinated layout of each and every one of the sections, to comply with the objectives of the entity.

* 5. From address (be guided to be)

Concept: executive function to guide or driver to inspect or supervise subordinates, according to plan.

The budget is an enormously useful tool for decision making, management by exception, or follow policies, overview, etc., ie, results, budget, a good direction.

Budget Goal: enormous help to follow policies, decision making and overview and help correct and well-founded, to drive to subordinates.

* 6. In control (see things)

Concept: is the action through which it assesses whether the plans and objectives are met.

The action controller of the budget, is set to make the comparison between it and the results obtained, leading to the determination of the checks or deviations have occurred, although, the simple determination of differences is not a solution, it will be necessary to analyze In order to take the appropriate steps to correct deficiencies in a timely manner, or encourage the resulting vats.

Target budget: a comparison between budgeted time and the results habits, resulting in differences analyzed and studied to make assumptions and corrections before they impact.

Features of the budget

* 1. In making

* Adjustment entity

The formulation of the budget, must be a direct function of the characteristics of the company, to be adapted to the purposes of the same in each and every one of its aspects, ie the adoption of a budget control system, can not be following a pattern applicable to all types of companies, in addition to the budget estimate is not only simple, its implementation requires careful study, on a scientific basis (in some cases) of the past operations of the company, which wants to introduce, knowledge of other companies similar to it, and the forecast of future operations, according to:

* The action, coordination and control functions

All acts in life, even the simplest, before they have been based on a plan, to formulate a budget should begin with a preconceived plan, on the other hand, such planning would not be practical if not carried out formally , plans are not made at the time presented a favorable situation, no, must have a forward-looking and be directed towards a clearly defined goal, to achieve this is essential, coordinate and control all the functions that lead to achieving this objective .

Among the recommended connection or paragraph, for better performance of the budget are:

– Sectioning in many parts of the budget, as responsible for the function that you have in the state, with authority and individual needs of stakeholders in monitoring and compliance with the budget, so that each area of responsibility, must be controlled a specific budget.

– Budgets should operate within an accounting mechanism, to be easily comparable.

– Do not leave opportunity for misinterpretation or discussions.

– Prepare the budgets in a position to be achievable.

* 2. By submission

* In accordance with accounting standards and economic

Budgets are used as tools of government (public or private) have the necessary reporting requirements, be in accordance with accounting standards and economic and in accordance with the accounting structure for comparison.

* 3. Applicable

* Flexibility and discretion

The continuing strong market fluctuations accurately are currently undergoing organizations due to competition, force the leaders to make significant changes to their plans, within relatively short, hence it is necessary for budgets to be applied flexibility and discretion, should accept these changes in the same sense that vary with sales, production needs, the economic cycle, and so on.

Advantages and disadvantages of the budget

The budget:

* To determine whether resources are available to implement the activities and / or pursued to achieve them.

* Decisions which are chosen to bring further benefits to the company.

* If you apply these standards in determining budgets (materials, labor and manufacturing overhead costs).

* It weighs the value of these activities.

Who use the budget as a management tool for their companies choose to greater results than those who venture into the adventure of way without having planned for the future. Its advantages are obvious:

* 1. Each member of the company you plan on achieving specific goals by implementing responsible for the different activities that were assigned.

* 2. The address of the firm made an early study of the risks and opportunities and creates among its members a habit to analyze and discuss them carefully before making decisions.

* 3. Periodically be rethinking policies and review and evaluate them after concluding they are not adequate to achieve the objectives.

* 4. Assist the proper planning of production costs.

* 5. It seeks to optimize performance through proper management of resources.

* 6. It creates the need to devise measures to efficiently use the limited resources of the company, given the cost of them.

* 7. It is the most appropriate to establish “cost average” and allows for comparison with actual costs, measures the efficiency of administration in the analysis of variations and provides incentives to act more effectively.

* 8. Facilitates the effective monitoring of each of the functions and operations of the company.

In addition to its advantages it also has its disadvantages:

* 1. The data to be estimated will be subject to trial or those who experience determined.

* 2. It’s just a tool of management. “A budget plan is designed to serve as a guide for the administration and not to supplant that.”

* 3. The implementation and operation takes time, therefore, your benefits will be after the second or third period when he has gained experience and the people involved implementation is fully convinced of the same needs.

Budget classification

It is common to realize that there are different types or denominations of the budget, in fact these different forms of calling, are due only to a particular feature of it. The following is a classification according to their salient features:

* 1. For the type of business

* Public

Are those made by governments, states, decentralized companies, etc., to control the finances of its various units.

* Private

Budgets are used by private companies, as an instrument of administration.

* 2. By its content

* Main

These assumptions are a kind of summary, which presents the core elements in all of the entity budgets.

* Auxiliary

Budgets are used by private companies, as an instrument of administration.

* 3. By the way (alternative phases present)

* Flexible

These assumptions considered in advance, changes that may occur and allow some flexibility for possible changes or fluctuations own, logical, or necessary.

* Fixed

Are the budgets remain unchanged for the duration of the budget period or during a reasonable number and accuracy that have been made, requires the institution to apply them inflexible operations trying to stick to the best possible content . Usually happens in communist or totalitarian countries, or for purposes of comparison.

* 4. For the duration

The determination of the budget covering the period depends on the type of transactions made by the company, and the degree of attitude and detail is desired, since longer correspond to a lower precision and analysis. Thus, there may budgets:

* Short, spanning a year or less, and

* Long, which is formulated for more than a year.

Both types of budgets are useful used. It is important for managers, have in advance a perspective on the business plans for a sufficiently long period and is inconceivable is without budgeting for short periods, as detailed programs for the period immediately following

* 5. For a valuation technique

* Estimated

Budgets are formulated based on empirical data, their numerical figures, to be determined on previous experiences represent only the more or less reasonable chance of actually happening as planned.

* Standard

Are those being made on scientific grounds or almost scientific, eliminate a high percentage of error possibilities, so their figures, unlike the previous ones, represent the results to be obtained.

* 6. As reflected in the financial statements

* In financial position

This type of assumptions, shows the static position that the company would in the future, if the predictions were met. Is presented by what is known as budgeted financial position.

* From results

Showing the potential gains or losses to get in a future period.

* Cost-

Are prepared based on the principles set out in the sales forecasts, and reflect, to a future period, expenditures have been effected by total cost or any part thereof.

* 7. For the purposes intended

* Promotional

It takes the form of financial and expansion project, for its elaboration is necessary to estimate income and expenses that have to make in the budget period.

* Applies

Usually prepared for credit application. Contribute forecasts about the distribution of resources that are available, or will tell the company, as planned.

* Melting

Is used to determine in advance the operations they are to result from a combination of entities or subsidiaries.

* For areas and levels of responsibility

When you want to quantify the liability of those responsible for the areas and levels, which divides an organization.

* For programs

This type of budget is normally prepared by government agencies, decentralized, trusts, institutions, etc.. His numbers expressed in expenditure, in relation to the objectives pursued by determining the cost of specific activities that each agency must perform to carry out the programs under their responsibility.

* From zero base

It is he who is without taking into account existing experience.

This budget is useful to the excessive and continuous rise in prices, inventory update, change, and by the continued increase in costs at all levels, basically. It is very costly and untimely information, but what it does, among other things to avoid vices, repetitions, and so on.

* Traditional

Is the classical normal usually used, especially in the “private.”

* 8. Labor

Is the common assumption, used by any entity. Its development occurs normally in the following stages pure:

* Provident

* Planning and

* Formulation.

* Partial Budgets

They are made in an analytical way, showing the estimated operations for each department. Based on them, are developed:

* Previous Budgets

Are those that contribute the development stage prior to the final, and studies subjects:

* Approval

The previous formulation is subject study, which usually leads to adjustment in tune those previous budgets, to end at:

* Final budget

Is one that is finally going to exercise, coordinate, and control in the period to which it relates. Experience with this kind of budget will lead to the development of:

* Budgets teachers or type

With these assumptions it saves time, money and effort because they do or adjustment only on those with substantial variation and, but should be reviewed continuously.

* 9. In economic operation or

Take into account the detailed planning of activities to be developed in the period following which they are developed, and its contents are summarized in a Statement of Profit and Loss. Among these assumptions are the following:

* Sales Budgets

They are usually prepared for months, geographic areas and products.

* Production Budget

Commonly expressed in physical units. The information needed to prepare this budget includes types and capacities of machines to produce economic quantities and availability of materials.

* Purchase Budget

Is the budget which provides for purchases of raw materials and / or goods to be made for a certain period. Usually made in units and cost.

* Cost-Production Budget

Sometimes this information is included in the production budget. When comparing the cost of production with the sale price, it shows whether the profit margins are adequate.

* Cash Flow Budget

It is essential to any company. Should be prepared after all other budgets have been completed. The flow budget shows anticipated receipts and expenditures, the amount of working capital.

* Budget Master

This budget includes the main activities of the company. Together and coordinates all activities of the other budgets and can be conceived as the “budget estimates.”

Information Sources

* Jorge E. Burbano Ruiz Budgets, management approach, planning and control of resources, Mc Graw Hill, third edition.

* Cristobal del Rio Gonzalez, budget, Thomson, ninth, tenth edition 2003.


Budgets are an important tool for companies if they know how to succeed in excel.

Should take into account the needs of the company and the correct implementation of this tool to each well needs to maximize the benefits it can offer.

It is good to note that a good budget comes from the experience of the preparer and deeper into past experiences of the entity.

It is best to stick to preset statistical procedures such as zero-base, and take what works best for those in the organization, must remember that every budget should have flexibility to address future problems that either are not the responsibility of the company, such as currency fluctuations and changes in legislation that may affect the operation of the entity.

This tool requires much preparation and care in its preparation, because if done improperly will result in erroneous results and decisions made based on them will take the employer to an almost certain bankruptcy.