Budget is a blue print of future course of action and activities. Budget means expressing the future course of action of an organization in quantitative terms.
Budgeting can be defined as the process of planning and anticipating costs and expenditure of various financial resources on projects. It is the process of making specific financial plans for a short period of time. It helps in predicting and controlling the money spent within the organization and also involves day to day monitoring of current budgets.
It involves making different budgets including:
Sales Budget: The budget is made to forecast sales in terms of units sold and value of goods sold. This budget acts as a base for making production budget.
Production Budget: The budget is made on the basis of sales budget and forecasts the number of units to be produced in coming months and how will production schedule be adjusted to meet the sales target.
Financial Budget: The budget is made to forecast the cash and capital requirements for different projects and how those financial needs be met.
Today, companies are outsourcing the budgeting process to professional accounting firms for better planning & allocation of resources. It helps the company to utilize its current resources in the best possible manner.
Budgeting provides the company the following advantages:
- Helps the management set out detailed plans for different departments
- Optimum resource allocation
- Helps the management set different budget targets
- Provides a yardstick against which the actual financial and non-financial performance can be measured
- Better management of scarce resources
- Better time management