Taking up now in more detail the procedure in forming a budget, first on the income and expenditure basis, and second on the receipts and disbursements basis, we have to consider the extent of the income for the period (whether it be monthly, half-yearly, or yearly) which may fairly be regarded as assured. Manufacturing companies are likely to have certain regular customers on whom they may safely count, unless extraordinary conditions prevail, for a given amount of business. The same thing is true of wholesale trading companies. The companies, both manufacturing and trading, which are selling at retail, can at least work out from their own records the minimum limits of their sales. The same thing may be done by public service and transportation companies. Companies which operate on long-term contracts extending over two or three years or more may conceivably be in the position of having all their capacity occupied with contracts previously arranged, in which case all their income will be assured.

Most companies have in addition certain possibilities which require careful study and good judgment in order to make possible a reasonably accurate estimate of earnings which are not assured but are probable. In making up these estimates, the financial manager will naturally be guided to a great extent by the views of the sales manager and other operating officials who are probably in closer touch than he is with the company's sources of income. It is well to state separately the amount of gross earnings which may be regarded as probable but is not assured.

The classification of expenses should follow the same lines of division. It is well to estimate, first of all, what may be called the fixed and necessary expenses of the business, assuming usually that it is intended to hold intact the organization that has been built up. These necessary expenses will include, therefore, the salaries of officers and their assistants, of salesmen, clerks, and working men, the purchases of raw materials necessary for production up to the amount that is assured, the up-keep of the plant, and other necessary expenses.

A second section will show the increase in expenses necessary in case the probable volume of business, as previously estimated, is secured. A third section will show further increases necessary in case the possible volume of business is attained.