Budget
A budget is a financial preparation or planning and a record of all planned expenses and revenues. It is a plan for borrowing, saving and spending.
A budget is a significant concept in microeconomics, which utilizes a budget line to exemplify the trade-offs between two or more goods. In other words, a budget is an organizational plan presented in monetary terms.
Summing up, the aim of budgeting is to:
- Provide a forecast of revenues and expenditures, i.e. make a model of how our business might work financially if some strategies, events and plans are occurred.
- Facilitate the real financial operation of the business to be calculated against the forecast.
- Establish the cost limitation for a program, project or operation.
Why do we produce budgets?
Budget assists to aid the planning of real operations by forcing managers to consider how the conditions might vary and what steps must be taken now and by encouraging managers to consider problems before they takes place. It also assists in co-ordinate the activities of the organization by convincing managers to examine relationships between their operation and those of the another departments. Other basics of budget include:
- To direct resources
- To communicate plans to several responsibility center managers.
- To motivate managers to try hard to attain budget goals.
- To assess the performance of managers
- To give visibility into the company's performance