What is budgeting?
What is Budgeting?
INTRODUCTION
A budget is defined as the formal expression of plans, goals, and objectives of management that covers all aspects of operations for a designated time period.
A budget is a tool providing targets and direction. Budgets provide control over the immediate environment, help to master the financial aspects of the job and department and solve problems before they occur. Budgets focus on the importance of evaluating alternative actions before decisions actually are implemented.
A budget is a financial plan to control future operations and results. It is expressed in numbers, such as rupees, dollars, units, pounds, hours, manpower, and so on. It is needed to operate effectively and efficiently.
Budgeting, when used effectively, is a technique resulting in systematic, productive management. Budgeting facilitates control and communication and also provides motivation to employees.
Budgeting allocates funds to achieve desired outcomes. A budget may span any period of time. It may be short-term (one year or less), intermediate-term (two to three years), or long-term (three years or more).
Short-term budgets provide greater detail and specifics. Intermediate budgets examine the projects the company currently is undertaking and start the programs necessary to achieve long-term objectives.
Long-term plans are very broad and may be translated into short-term plans. The budget period varies according to its objectives, use, and dependability of the data used to prepare it. The budget period is contingent on business risk, sales and operating stability, production methods, and the length of the processing cycle. Effective budgeting requires the existence of-
1. Predictive ability.
2. Clear channels of communication, authority, and responsibility.
3. Accounting generated should be accurate and reliable.
4. It should have compatibility and understand ability of information.
5. Support at all levels of the organization i.e. upper, middle, and lower.
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