Budgeting & Purpose of Budgeting

Budgeting & Purpose of Budgeting

1. BUDGETING

   • An estimation of the revenue and expenses over a specified future period of time. A budget can be made for a person, family, group of people, business, government, country, multinational organization or just about anything else that makes and spends money. A budget is a microeconomic concept that shows the tradeoff made when one good is exchanged for another.

2. PURPOSES OF BUDGETING

   • "EMC3 PAD"
   • Evaluation
     • Responsibility accounting divides the organisation into budget centers which keeps each manager responsible for the cost and revenues of the particular budget center .Thus through budgeting there is a scope for evaluation
   • Motivation
     • The budgets act as a yardsticks for the performance of the managers .They will be motivated since they know what they have to achieve to meet the overall org objectives .The managers can be entitiled to commissions and incentive if the budget centers performance rise above the budget
   • Control
     • Actual results can be compared with the budgeted figures and corrective action can be taken
   • Communication
     • A budget is a communication channel through which the senior level executives interact with the junior staff for conveying the org objectives to be achieved
   • Planning
     • Budgeting looks ahead into the future and it drives to planning
   • Authorization
     • the budget acts as a formal method of authorisation to manager for ,hiring staff and pursuit of plans contained within the budget .
   • Delegation
     • junior staff can be called for putting thier contributions to the budget ,this enables the management to make more realistic budgets
   • Coordination
     • The budges coordinates the efforts of all departments inside an org to achieve common goals