What is Rolling Budget? How does it differ from flexible Budget? What purpose do these budgets serve?
A rolling budget is also known as a continuous budget, a perpetual budget,or a rolling horizon budget. We will use the following example to explain the meaning of a rolling budget. Let's assume that a company's accounting year ends on each December 31.Prior to the start of the year 2013, the company prepares its annual budget which is detailed by month for January through December 2013.
This budget could become a rolling budget if after January 2013 the company drops the budget for January 2013 and adds the budget for January 2014. This rolling budget now covers the one year, or 12-month, period of February 1, 2013 through January 31, 2014. At the end of February 2013, the rolling budget will drop February 2013 and will add February 2014. At this point the rolling budget will cover the one year period of March 1, 2013 through February 29, 2014.
The benefit of a rolling budget is that the company's management will always have a budget that looks forward for one full year. A rolling budget could use 3-month periods or quarters instead of months.Also, a company might have a 5-year rolling budget for capital expenditures. In this case a full year will be added to replace the year that has just ended. This 5-year rolling budget means that management will always have a 5-year planning horizon.