Budgeting leads to the question why budgeting
BudgetingStudent’s nameInstitution affiliation Budget is defined as an estimate of an entity’s incomeand expenditure within a specific duration of time (Becker, 2016). A typical budgetshould entail the entity’s limit on expenses, goals and objectives and boundaries.Like any other business undertaking, budgeting has also its strong and weakpoints.
Depending on a certain number of defining factors somecompanies might give the budgeting a primordial place in coordinating theirdaily routine while others might not take it much seriously. Consequently, these leads to the question whybudgeting is an important tool to companies. The reason behind why the companies’budget can be divided into threecategories, i.
e. management control,performance evaluation and planning (Becker, 2016). First, companies prepare budgets to work as a guideto both the management and business owners. Budgets work a roadmap for the company, without budgeting mostcompanies will incur problems keepingtrack of their resources. With a proper budget in place, the company will beable to determine the prices for their productsbased on the manufacturing cost (Savic, 2016).
In addition, the budget will aid the managementin determination of the number ofresources to allocate to various departments within the business. Without aproper budgeting system a company mightend up assigning excess resources to one activity leaving other business activatesunallocated creating instability in the business process. Secondly, budgetsare important to a company as they can be used as benchmarks for controlling the company’sexpenses. A sound budget system enablesthe company to control fraudulent activitiesamong its staffs. Finally, budgeting isan important tool to the management as it helps them to evaluate the performance ofthe firm over a given period of time. Generally,budgeting helps the company to determine areas requiring attention towards the attainment of the set objectives.
A budget is a critical tool to the managers and economists when drawing thecorporate strategies. References Becker, S. D. (2016).
Budgeting in times of economic crisis. Contemporary Accounting Research, 33(4), 1489-1517. Savic, B. V. (2016). THE ROLE AND IMPORTANCE OF STRATEGIC BUDGETING FOR COMPETITIVENESS OF THE AGRIBUSINESS SUPPLY CHAIN 1.
Ekonomika Poljoprivrede, 63(1), 295.