A budget is a financial tool that used to plan the activities of a business. This helps the managers to also evaluate their progress. There are various types of budgets that capture various aspects of an organization. An operating budget is a budget whose components are expenses and revenues that a government or organization intend to use over a certain period of time. This duration can either be quarterly or annually. This budget is usually prepared prior the period and is indicative of what the government or organization intends to achieve during the period (Swain, 2015) . One of the main components of an operating budget is revenue forecast for the period. This is usually broken down into its various components. The drivers of revenue in an organization are volume and pricing. Volume entails the products to be sold, the customers and the various contracts capable of generating income. The price covers various aspects such as segment price, unit price and average price. Variable costs are also captured in an operating budget. These costs are dependent on revenue. Some examples of variable costs include direct labour, commissions from sales and cost of goods. These are calculated as a percentage of sales (Corporate Finance Institute, 2019) .
After variable costs are deducted, the next step is usually to deduct the relatively constant costs. These are referred to as fixed costs. Some examples of fixed costs include rent, insurance and utilities. Others are salaries and benefits. Non-cash expenses are also part of the operating costs. These are costs that do not affect cash flow for the period but will have an impact during reporting of the financial performance during that period. Some examples of these expense are depreciation and amortization. Other aspects of expenses include non-operating expenses such as taxes, losses, gains and interest (Corporate Finance Institute, 2019) .
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A financial budget is a budget that predicts the income and expenses of an organization over a certain period of time. This can be either in the short run or in the long run. In so doing, the business is able to accurately project the cash flow. The budget usually captures the sources of incomes and expenses as well as having a cash flow budget. It also encompasses a detailed budget balance sheet. In addition to aligning the financial goals of any organization, a financial budget also provides a detailed picture of the functioning of the organization to the shareholders (Swain, 2015) .
A financial budget has various sections namely the cash budget, budgeted balance sheet and capital expenditure budget. The budgeted balance sheet has among others the production budget. On the other hand, the cash budget captures the inflows and outflows in the organization. This is a dynamic budget because cash flow keeps on changing. Finally, the capital expenditure budget refers to expenses that concerns any capital asset in an organization. These include expenses related to machinery either in its maintenance or replacement (Swain, 2015) .
References
Corporate Finance Institute. (2019). What is an Operating Budget? Retrieved from Corporate Finance Institute: https://corporatefinanceinstitute.com/resources/templates/excel-modeling/operating-budget/
Swain. (2015). Budgeting for Public Managers. New York : M.E. Sharpe.
