Learning Materials For Accounting, Management , Finance And Economics.

Thursday, February 17, 2011

Meaning Of Budgeting And Budget

What Is Budgeting ?

Profit is the primary measure of business success. Usually, profits do not just happen. Profits are managed. Therefore, the profitability the firm fully depends on as to what extent the management follows proper planning, effective co-ordination and dynamic control. This requires that management must plan for the future financial and physical requirements for maintaining productivity and profitability of the firm is generally called 'budgeting'.

Budgeting is a tool of planning and control. Budgeting involves the steps of setting short-term objectives, specifying programs, and expressing them in the budgets. Budgeting includes sales, production, distribution and financial aspects of the firm.

What Is Budget ?

A budget is a comprehensive and coordinated plan, expressed in financial terms, for the operations and resources of the firm for some specified period in the future. Budget programs are designed to carry out a variety of functions like, planning activities, implementing plans, communicating, motivating and authorizing actions.

A budget is a written plan for the future. A complete budget for a firm is often called the master budget.
Therefore, a budget is a numerical plan of action that must be prepared in advance of commencing operations, stating what and how things are to be done. It covers a definite period of time, usually one year. The budget is basically forecasted financial statement, which expresses managerial plans that include all phases of operations such as sales, production, purchasing, manpower and financing.