AQA BUSS2 Topic 1 - Using Budgets


What is a budget & how are they used?

A financial plan for the future concerning the revenues & costs of a business.

  • a financial plan
  • sets out financial targets
  • expressed in money 
  • a plan of action over a given period expressed in numbers

Used to:

  • establish priorities & set targets
  • provide direction &co-ordination
  • assign responsibilities
  • allocate resources
  • delegate without loss of control
  • motivate staff
  • monitor performance
  • control revenues & costs
  • communicate targets
1 of 4

Two main approaches to budgeting

Historical budgeting

  • use last year's figures as the basis for the budget 
  • realistic - based on actual results
  • although circumstances may have changed e.g. economy, loss of customers
  • does not encourage efficiency

Zero-based budgeting

  • budgeted costs & revenues are set to zero
  • budget is based on new proposals for sales & costs i.e. built from the bottom-up 
  • makes budgeting more complicated & time-consuming however potentially more realistic
2 of 4

What are variances?

The difference between actual & budget figures


When actual figures are better than budget figures, e.g. costs lower than expected & revenue/profits higher than expected


When actual figures are worse than budget figures, e.g. costs higher than expected & revenue/profits lower than expected

3 of 4

Drawbacks & limitations of budgeting

  • Only as good as the data being used
  • Can lead to inflexibility in decision-making
  • Need to be changed as circumstances change
  • Takes time to complete & manage
  • Can result in short term decisions to keep within the budget
4 of 4


No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all Financial Planning resources »