The budget period may be defined as the period for which a budget is prepared and employed.
The budget period will depend upon the following two factors:
(i) The type of business; and
(ii) the control aspect.
For example, in the case of seasonal industries (i.e., food clothing), the budget period should be a short one and should cover one season. But in the case of industries with heavy capital expenditure, such as heavy engineering works, the budget period should be long enough to meet the requirements of the business.
From the control point of view, the budget period should be short so that the actual results may be compared with the budget each weekend of month-end and discussed with the Budget Committee.
Short-term budgets should supplement the long-term budget to make the budgetary control successful, as short–term budgets will help exercise control over the day-to-day operations. In short, the budget period should not be too so that estimates may not become unreliable.
Similarly, it should also be not too short, so there may be sufficient time before budget implementation. The annual budget is quite common for businesses because it compares with the financial accounting year.
There should be a regular time plan for budget preparations. It may be on the following lines:
(1) Long–term budgets for three to five years should be prepared for expansion and modernization, the introduction of new products or new projects and undertaking heavy advertisement.
(2) Annual budget coinciding with the financial accounting year should be prepared for the operational activities (i.e., sales, purchase, production etc., of the business).
(3) For control purposes, short–terms budget- monthly or even weekly budget – should be prepared for watching the progress of actual performance against the target.
A short-term budget is prepared to see that actual performance is proceeding according to the budget, and early corrective actions may be taken if there is any pitfall.