Budgeting
Budgeting – the systematic determination and listing of expected output(s), revenue(s), and costs due to the production process(es) required to produce one unit of an enterprise for a specified future production period.
Budgeting is a systematic approach that predicts revenues and expenditures of an individual, family, group, business entity, or government. Budget planning and preparation, budgetary control, and related procedures are the managerial processes. Budgeting is the highest level of accounting in terms of the future, which indicates a definite course of action and not merely reporting [WallStreetMojo].
A budget is a financial plan to control future operations and results. It is expressed in numbers, such as dollars, units, pounds, hours, manpower, and so on. It is needed to operate effectively and efficiently. Budgeting, when used effectively, is a technique resulting in systematic, productive management. Budgeting facilitates control and communication and also provides motivation to employees. Budgeting allocates funds to achieve desired outcomes. Budgeting is done for the company as a whole, as well as for its component segments including divisions, departments, products, projects, services, manpower, and geographic areas. Five important areas in budgeting are planning, coordinating, directing, analyzing, and controlling. The longer the budgeting period, the less reliable are the estimates.
Effective budgeting requires the existence of:
– predictive ability;
– clear channels of communication, authority, and responsibility;
– accounting-generated accurate, reliable, and timely information;
– compatibility and understandability of information;
– support at all levels of the organization: upper, middle, and lower.
Budgeting is planning for a result and controlling to accomplish that result. Budgeting is a tool, and its success depends on the effectiveness to which it is used by staff .
It is an integral part of such managerial policies as long-range planning, cash flow, capital expenditure, and project management [YourArticleLibrary]. A realistic report helps businesses trace their financial performance. This is crucial for decision-making.
They are classified into personal, corporate, government, static, flexible, master, operating, cash, financial, and labor subtypes[WallStreetMojo].
⠀ Bradford, G. L., Debertin, D. L. (1985). Establishing linkages between economic theory and enterprise budgeting for teaching and extension programs. Southern Journal of Agricultural Economics, December, Pp. 221-230 (p. 222).
⠀ Shim, J. K., Siegel, J. G. (2005). Budgeting Basics and Beyond (2nd ed.). Hoboken, New Jersey: John Wiley & Sons, Inc. (p. 1-3)
Tanwar, Manisha. (n. d.). Budgeting: Meaning, Purpose, Process and Principles. YourArticleLibrary. Retrieved from: https://www.yourarticlelibrary.com/accounting/budgeting-accounting/budgeting-meaning-purpose-process-and-principles/71709
Budgeting. Wallstreetmojo. Retrieved from: https://www.wallstreetmojo.com/budgeting/