A plan for an organization's outgoing expenses and incoming revenues for a specific time period.
Budget planning begins with high level budgets, primarily the entity-wide capital and operating budgets.
§ Many Firms plan the capital budget on an entity-wide basis, choosing not to further divide it into individual department budgets. Individual budget items for the high level capital budget may nevertheless appear in categories. And, these may represent major components of the firm's asset structure, such as "Inventory purchase".
§ On the other hand, large firms almost always plan spending and revenues for the operating budget in the framework of a budget hierarchy.
o Individual line items in the top level operating budget may carry the names of departments or groups, such as "Marketing." Or, items may name basic roles, such as "General management and administration".
o In the budgeting process, senior managers first set spending levels for higher level categories such as the "Marketing Budget." . Then, Marketing managers further apportion this into lower level budgets for areas such as market research, advertising, and events.
The two top level budgets together essentially cover spending for the entire entity.
Exhibit 2 shows a few of the levels in one firm's budget hierarchy:
Exhibit 2 shows a few of the levels in one firm's budget hierarchy:
Malaysia budget hierarchy
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