Rolling Budgets

Question 1

What is a rolling budget

Answer 1

A rolling budget is a ‘budget continuously updated by adding a further accounting period (month or quarter) when the earliest accounting period has expired’

Rolling budgets are also called continues budgets. Rolling budgets are for a fixed period, but this need not be a full financial year.

Question 2

What are the reasons for a rolling budget

Answer 2

The reasons for a rolling budget is to deal with the problem of uncertainty in the budget, when greater accuracy and reliability is required. A common example is a cash budgeting. Cash management is often a critical element of financial management in organisations, and it is essential to have reasonably reliable forecasts of cashflows, especially over the course of the next few days weeks or months. An organisation might therefore produce rolling budgets (=revised forecasts) for cash flow. The cash budget period might be three or six months, and rolling cash budgets might be prepared monthly.

Question 3

Advantages and Disadvantages of rolling budgets

Answer 3

Advantages

• They reduce uncertainty in budgeting
• They can be used for cash management
• They force management to look ahead continuously
• When conditions are subject to change, comparing actual results with rolling budgets is more realistic than comparing actual results with a fixed annual budget

Disadvantages

• Preparing budgets regularly is time consuming
• It can be difficult to communicate frequent budget changes