BUDGETING

Budgeting



Budgeting

Introduction

A budget can be defined as a set of document that exhibits the process of translating plans, schemes, ideas and goals into monetary terms. Here the monetary resources are referred to the amount needed to spend on various activities to carry forward the plan along with the monetary resources that can be generated from the project undertaken or plan executed. Both of these concepts refer to the term expenditure and income. In more simple terms, a budget can be defined as a educated guess made by the analyst or financial experts pertaining to the needs and requirements of the organization or a project in form of monetary value to carry out desired work (Sharpio, J., n,d,, pp. 1-14).

It is also necessary to clear the concept regarding various aspects of budget at the introductory level. A budget can be altered any time as per changing business requirements. A budget for the older year cannot be repeated in the next year. It is required to undertake many changes with respect to economy, inflation, organizational needs, etc. Therefore, every company must perform budgeting process in order to find out what really is needed to boost the operations and revenues of the organization by planning and making new budgets every year. A budget should not only be used to evaluate a project or product only, it is a very useful technique that should be taken place on regular basis for every significant task in routine. It should be assessed and evaluated every month or after specified time period. If used effectively, it can prove to be an innovative tool in determining the strengths and weakness of a project or product or any task. It is essential to make one understand that a budget does not necessary produce accurate cost and income figures, there are higher chances that the actual figures may vary from the estimated budget.

It is also worth mentioning the significance of budgeting from organizational point of view. It is considered as a significant managerial tool. The company planning and executing plans without preparing a budget are considered as similar to the electrician without appliances and adequate machinery to perform his job. The budget is a mean of determining the amount to spend on a specific task in the business. It makes management alert while executing tasks that it should be particularly as per the plan and within the cost estimated as per budget in order to avoid making additional expenses. Budget guides management to carry out operations within desired limits and as per specified plans i.e. the right way. It also indicates when to make expenditure and when to stop and serve as an alert system. It indicates management if they are out of money for a certain task and if more money should be spent on the same task. It also helps in monitoring and identifying the problem areas of operations and also assesses the expenses and income made from a single ...