Q:

What are differences between static and flexible budgets?

A:

A static budget refers to a budget set by a company that predicts a certain level of sales and output before a sales period begins, while a flexible budget evaluates actual sales at the end of a given period. Static budgets, also called original budgets, help companies and sales managers prepare financially for a set time period by allocating a certain amount of financial resources and personnel to achieve certain sales and output volumes. Like flexible budgets, they play a role in helping organizations plan for the future, using projected estimates of input and output.

Flexible and static budgets serve as equally important tools for companies. Static budgets act as planning and forecasting mechanisms. Accountants and sales managers prepare budgets at the start of a set term, which might be a quarter, half-year or full fiscal year. These budgets provide a best guess for output during that period of time. The type of output measured varies depending on the classification of the organization.

Retailers and grocery chains, for instance, might predict a certain volume of clothing and food sales during a given time period. Hospitals might anticipate a certain number of patients through a period of days or months. At the end of the period established in a static budget, the flexible budget enters the picture. This budget acts as a performance evaluation and reflection tool. It compares actual output to anticipated output, showing the variation between real sales and forecast sales.

Learn More

Related Questions

  • Q:

    What does "accounts payable turnover" mean?

    A:

    "Accounts payable turnover" is a ratio that measures the liquidity of a company according to the rate at which it pays its suppliers. It is calculated by finding the total supplier purchases and dividing the figure by the average accounts payable for a specific period.

    Full Answer >
    Filed Under:
  • Q:

    What is an accounting voucher?

    A:

    An accounting or accounts payable voucher is a document used as an internal control mechanism in the invoicing process. The voucher is filled out after a three-way match of the invoice, purchase order and receiving report.

    Full Answer >
    Filed Under:
  • Q:

    Is revenue the same as sales?

    A:

    According to About.com, sales can account for a part or the whole of a company's revenue. Revenue is the amount of money that a company earns from its primary activities. If a company's primary activity is sales, such as a retail corporation, then revenue is the same as sales. If a company has different revenue streams, such as sales and rental income, then sales accounts for a portion of revenue.

    Full Answer >
    Filed Under:
  • Q:

    When should an invoice be issued?

    A:

    Any company that sells to non-consumers should issue an invoice to the buyer at the time an order is placed or a purchase transaction takes place. In some cases, companies send invoices at the start, middle or end of a month instead of at the time of each purchase.

    Full Answer >
    Filed Under:

Explore