Introduction And Meaning Of Budget
Budget is a financial plan prepared to estimate the revenue and expenditure for the specific period. It is a process of projecting income or revenue, estimating the spending, setting business goals and making a plan to accomplish those goals. Budget provides guidance to plan future operations, to help effective use of resources, and to make sound decisions. Therefore, budget is a financial document that contain financial policies and objectives of an organization for a certain period of time.
Objectives Of Budget
The main objectives of budget can be pointed out as follows:
1. To Estimate Revenue And Expenditure
Budget is prepared to estimate the cash flows (revenue and expenditure) of the company for the specific period. It facilitates the management to conduct various activities such as planning, coordinating and controlling of income and expenditure of the company.
2. To Ensure Effective Use Of Fund
Budget helps in forecasting, decision making and provides action plan to ensure proper use of fund or capital. So, it helps the company to generate more revenue within the given period.
3. To Minimize Costs And Wastage
Another objective of preparing budget is to control unnecessary costs and wastage of resources. It promotes maximum utilization of available resources in order to improve operational efficiency that helps to increase production and reduce costs. This leads to increase in the output and profit of the firm.
4. To Maintain Better Coordination
It guides the management to maintain proper coordination between different branches, units, departments etc. to achieve better result. Better coordination improves communication and creates harmonious relationship among the employees in the workplace that makes better working environment. Good working environment is essential to achieve predetermined goals and objectives of the organization.
5. To Evaluate And Compare The Results
It helps the management to evaluate the performance by making comparison between budgeted and actual results. Corrective measures can be taken if needed and make improvement in the future.
6. To Assist Decision Making
Managers make decisions on the basis of estimations and guidance provided by budget. It helps to make forecasting and decisions that helps smooth functioning of day to day activities.
