Flexible Budget and Static Budget - Essay Example

Different companies prefer different types of budget systems due to differences in accounting practices. The difference between the two forms of budgeting is that, while a static budget is constructed at the beginning of the accounting period, a flexible budget is usually adjusted as the accounting period continues to accommodate all activities that are involved in budgeting. A static budget is drafted at the beginning of the accounting period with an outline of how much will be spent or received as estimates.

This system is used as an estimated budget to set targets for the company. Unlike a static budget which is prepared before the beginning of the accounting period, a flexible budget is prepared daily and continues till the end of the period (Mowen, 2012). The static budget ensures comparison and variance analysis is done due to the presence of the actual budget and estimated budget while the flexible budget does not involve a comparison of budgets as there is only one budget. A flexible budget is not always better as it does not involve many activities like variance analysis to evaluate the performance of the company.