Beruflich Dokumente
Kultur Dokumente
TOPIC: Critically study and evaluate the concept of budget and its
impact on any organization.
SUBMITTED BY:-
AMIT RAJ
GUIDED BY:-
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ACKNOWLEDGEMENT
With profound gratitude and sense of indebtedness I place on record my sincerest thanks
to Rajeev Dutraj, Prof In Management, Indian Institute of Legal Studies, for her
invaluable guidance, sound advice and affectionate attitude during the course of my
studies.
I have no hesitation in saying that she molded raw clay into whatever I am through her
incessant efforts and keen interest shown throughout my academic pursuit. It is due to her
patient guidance that I have been able to complete the task.
I would also thank the Indian institute of Legal Studies Library for the wealth of
information therein. I also express my regards to the Library staff for cooperating and
making available the books for this project research paper.
Finally, I thank my beloved parents for supporting me morally and guiding me throughout
the project work.
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SYNOPSIS
The aim and objective of this project is to study the concept of budget and its impact on any
organization.
2) STATEMENT OF PROBLEM
With this project, the researcher tries to find about how budget plays a vital role in any business
organization.
3) RESEARCH QUESTIONS
4) RESEARCH HYPOTHESIS
5) RESEARCH METHODOLOGY
The research methodology used is completely doctrinal which includes books, and websites.
CONTENT
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S.NO TOPIC PG.NO.
01 Introduction 05
02 Meaning of budgeting 06
03 Types of Budgets in Managerial Accounting 07
04 Advantages of budget on any organization 09
05 Limitations of budget on any organization 11
06 Conclusion 13
Bibliography I
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Chapter 1:
Introduction
Budgeting is a process whereby future income and expenditure are decided in order to
streamline the expenditure process. Budgeting is done in order to keep track of the expenditures
and income. It serves as a monitoring and controlling method in order to manage the finances of
a business. It begins by deciding upon the financial goals according to which the budget will be
made. Other important activities in the budgeting process include things such as forecasting,
monitoring, controlling and evaluating the financial goals.
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Chapter 2:
Meaning of budgeting
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https://www.accountingcoach.com/blog/what-is-budgeting [last seen on 19th oct,2018 at 9:25PM]
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Chapter 3 :
Types of Budgets in Managerial Accounting
The operational budget covers revenues and expenses surrounding the day-to-day core
business of a company. Revenues represent sales of products and services; expenses define the
costs of goods sold as well as overhead and administrative costs directly related to producing
goods and services. While budgeted annually, operating budgets are usually broken down into
smaller reporting periods, such as weekly or monthly. Managers compare ongoing results to
budget throughout the year, planning and adjusting for variations in revenue2.
A cash flow budget examines the inflows and outflows of cash in a business on a day-to-day
basis. It predicts a company's ability to take in more money than it pays out3. Managers monitor
cash flow budgets to pinpoint shortfalls between expenses and sales -- times when financing may
2
http://chss.uonbi.ac.ke/sites/default/files/chss/onduso%20final%20project%20for%20submission%2050.pdf [last
th
seen on 20 oct,2018 at 09:50 PM]
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http://www.yourarticlelibrary.com/accounting/budgeting-accounting/advantages-and-limitations-of-
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budgeting/52793 [last seen on 20 oct,2018 at 09:56 PM]
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be needed to cover overheads. Cash flow budgets also suggest production cycles and inventory
levels so that a company's resources are available for activity, not sitting idle on warehouse
shelves.
A financial budget outlines how a business receives and spends money on a corporate scale,
including revenues from core business plus income and costs from capital expenditures.
Managing assets such as property, buildings, investments and major equipment may have a
significant effect on the financial health of a company, particularly through the peaks and
troughs of daily business. Executive managers use financial budgets to leverage financing and
value the company for mergers and public offerings of stock.
A static budget contains elements where expenditures remain unchanged with variations to
sales levels. Overhead costs represent one type of static budget, but these budgets aren't confined
to traditional overhead expenses. Some departments may have a fixed amount of money set in
budget to spend, and it is up to managers to make sure such amounts are spent without going
over-budget. This condition occurs routinely in public and nonprofit sectors, where organizations
or departments are funded largely by grants4.
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dspace.knust.edu.gh/bitstream/123456789/4836/1/Gershon%20Kpedor.pdf [last seen on 20 th oct,201 at 10:09 AM]
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Chapter 4 :
Advantages of budget on any organization
Budgeting plays an important role in the effective use of resources and achieving overall
organizational goals5.
4.1 It has the following advantages:
4.1.1 Budgeting compels and motivates management to make an early and timely study of its
problems. It generates a sense of caution and care, and adequate study among managers
before decisions are made by them.
4.1.2 Budgeting provides a valuable means of controlling income and expenditure of a business
as it is a “plan for spending.”
4.1.1 Budgeting provides a tool through which managerial policies and goals are periodically
evaluated, tested and established as guidelines for the entire organisation.
4.1.2 Budgeting helps in directing capital and other resources into the most profitable channels.
4.1.3 Budgeting enables management to decentralise responsibility without losing control of
the business. It reveals weaknesses, inefficiencies, deviations in the organisation very
promptly which can be checked immediately to achieve a desired goal.
4.1.4 The use of budgeting in an organisation develops an attitude of “cost consciousness”,
stimulates the effective use of resources, and creates an environment of profit-
mindedness throughout the organisation. It emphasises how much should be spent to
achieve a goal.
4.1.5 It provides a norm, basis or yardstick for measuring performance of departments and
individuals working in organisations. Individual managers can evaluate their own
decisions and achievements and take suitable steps to improve their performances.
4.1.6 Budgeting encourages productive competition, provides incentive to perform efficiently
and gives a sense of purpose to each individual in the organisation. All these positive
factors lead to higher output and increase employee productivity.
4.1.7 Budgeting provides a systematic and disciplined approach to the solution of problems in
the organisation6.
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4.1.8 Budgeting, if executed in nearly every enterprise, helps the total national economy by
providing stability of employment, economic use of resources and effective prevention of
waste.
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https://gupea.ub.gu.se/bitstream/2077/22617/1/gupea_2077_22617_1.pdf [Last seen on 11th oct,201 at
10:00 AM]
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Chapter 5 :
Limitations of budget on any organization
5.1 While budgeting performs many functions and has many advantages that are vital to
an organisation7, it has certain limitations which require careful consideration:
5.1.1 Planning, budgeting or forecasting is not an exact science; it uses approximations and
judgement which may not be cent per cent accurate. At best, a budget is an estimate;
no one knows precisely what will happen in the future.
5.1.2 The success and utility of budgeting depends on the cooperation and participation of
all members of management. All persons should direct their efforts according to the
plan. The top management also should adhere to the budget and provide cooperation.
Many a time budgeting has failed because executive management has paid only lip
service to its execution.
5.1.3 A budget is only a tool and neither eliminates nor takes over the place of
management. A budget cannot be substituted for management but should only be
used by management for accomplishing managerial functions. Executives generally
feel “circled in” by a budget and its related figures. They fail to understand that
budget is meant to provide detailed information, goals and targets which may help
them in achieving the company objectives.
5.1.4 The establishment of a budgeting process taken time. Also, sometimes too much is
expected from a budget and in case expectations are not fulfilled, the blame is put on
the budget. An efficient budgeting programme requires that responsible persons
should understand the philosophy, objectives and essentials of budgeting.
5.1.5 Excessive emphasis on budgeting may result in attempts by lower level management
and employees to buck the system by providing inaccurate estimates of future costs
and revenues, and by failing to take advantage of changes in the environment because
to do so would result in a deviation from plan, they would be considered as operating
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contrary to the budget. Under an unbalanced budget programme, employees will tend
to overestimate costs and underestimate revenues, thus creating budget slack.
5.1.6 As the end of budget period approaches and employees realise that actual expenses
have not been as great as allowed by the budget, there may be a temptation to spend
excessive amounts in order to “use up” the budget allowance. Such activities result in
sub-optimal profits for the company8.
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http://www.yourarticlelibrary.com/accounting/budgeting-accounting/advantages-and-limitations-of-
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budgeting/52793 [last seen on 20 oct,2018 at 09:56 PM]
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Chapter 6 :
Conclusion
Budgeting process is very crucial for any business entity. Without a proper budget, a
business can never keep track of how much it has earned and how much it has spent. Budget
serves a great guide by which a business can oversee its income stream and can identify potential
dangers to it beforehand. Furthermore, budget acts as a valuable tool in order to take control of
how a business spends. A budget makes sure that all the money is being spent in the right
direction and financial goals are attained.
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BIBLIOGRAPHY
Websites :
https://www.accountingcoach.com/blog/what-is-budgeting
http://chss.uonbi.ac.ke/sites/default/files/chss/onduso%20final%20project%20for%20sub
mission%2050.pdf
http://www.yourarticlelibrary.com/accounting/budgeting-accounting/advantages-and-
limitations-of-budgeting/52793
dspace.knust.edu.gh/bitstream/123456789/4836/1/Gershon%20Kpedor.pdf
http://www.yourarticlelibrary.com/accounting/budgeting-accounting/advantages-and-
limitations-of-budgeting/52793
http://www.yourarticlelibrary.com/accounting/budgeting-accounting/advantages-and-
limitations-of-budgeting/52793
https://gupea.ub.gu.se/bitstream/2077/22617/1/gupea_2077_22617_1.pdf [Last seen on
11th oct,201 at 10:00 AM]
www.fao.org/docrep/w4343e/w4343e05.html [last seen on 1th oct,2018 at 7:09 AM]
AM]
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