Question

A departmental budget is a tool used to project the income and expenses of a specific department in order to achieve its financial goals. The two types of budgets most commonly used in healthcare are capital budget, and operating budget. Research the differences between a capital and operating budget.  Name five elements that must be included in your budget and provide a detailed explanation of why these elements are important.

Answer 1

Budget is used to predict income and expenses of a particular period which can be a month, quarter or even a year.

Budget is nothing but understanding the past trends of income and expenses of a particular department and predicting on the basis of that trend and any extra information that is available for estimating the income as well as expenses for a particular period.

Budget prepared are of two types as told. These are Capital Budget and Operating Budget.

Capital Budget as the name tells is budget prepared for capital expenses that will be required for during the year. Capital expenses include fixed assets and heavy expenses like setting up a new factory or for entering a new market. These are not regular expense and hence the amounts can be huge at times.

Operating Budget means budget for day to day working and this include normal running expenses. Operating as name suggests is for daily operations.

Key elements to be included in a budget are :-

1) Contingency expenses - Budget should include an amount for contingency. Such amount is useful for catering to unusual expenses.

2) Period - The budget should be prepared keeping in mind the period for which it is to be prepared. The budget varies and changes according to period. For year it is different while for quarter is different.

3) Income - The income should be estimated properly. Even other sources of income should also be included.

4) Departments - Budget should be prepared for various departments like production, sales, marketing, etc. This helps in near to actual preparation of budget.

5) Co-ordination - Co-ordination is really important between various departments. Without co-ordination the budget prepared may go haywire.

6) Time - The budget should be prepared devoting time and not in haste. In rush the budget prepared may be without certain elements.

Thus preparing budget is very important and a task which requires expertise and knowledge of whole business.