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BUDGETING

Submitted By :
Pooja S Bulbule
MIS -111301012
Branch civil
Roll no. -03
What is Budgeting ?
It is the process of creating a plan to spend your money that
allows you to determine in advance whether you will have
enough money to do the things you need to do or would like
to do.
Contd
..
It is nothing but creating a plan for your future income and
expenditures that you can use as a guideline for spending and saving.
Budgeting is simply balancing your expenses with your income.
PURPOSES OF BUDGETING
Mechanism for translating fiscal objectives into projected monthly spending
pattern.
Enhances fiscal planning and decision making.
Clearly recognizes controllable and uncontrollable cost areas.
Offers a useful format for communicating fiscal objectives.
Allows feedback of utilization of budget
Contd..
Helps to identify problem areas and facilitates effective
solution.

Provides means for measuring and recording financial


success with objectives of organization
PREREQUISITES TO BUDGETING
1. ORGANIZATIONAL STRUCTURE:

- Need a sound organizational structure with clear line of authority and


responsibility
2. CHARTS OF ACCOUNTS :

Designed to be consistent with the organizational plans.Revenues and expenses are


reported by responsibilities areas
Thus providing historical data that are valuable for planning and providing budgetary
control for evaluation as performance can be compared to plans.
3. MANAGERIAL SUPPORT:

Essential for the budgetary program. Budgeting is done at the


departmental level, it must be valued by top administration.
Managers must be willing to devote their time and energy to the
budgeting process.
4. FORMAL BUDGETING PROCESS AND PROCEDURES:

Should be available in budget manual, in which objective are clarified and


instructions for budget development are discussed.
Calendar of budgeting activities with the schedule for each stage of
programme is presented.
CHARACTERISTICS OF
BUDGETING
1. Should be flexible.

2. Should be synthesis of past ,present and future.

3. Should be product of joint venture and cooperation of


executive/department head at different level of
management
Contd
4. Should be in the form of statistical standard laid down in the specific numerical
terms.
5. Should have support of top management throughout the period of its planning and
implementation.
IMPORTANCE OF BUDGETING
1. Needed for planning future course of action and control over all
activities in the organization.
2. Facilitates coordinating operation of various departments and sectors.
3. Helps to weigh values and make decision when necessary.
PRINCIPLES OF BUDGET
1. Should provide sound financial management by
focusing on requirement of the organization
2. Should focus on the objectives and policies of the
organization.
3. Should ensure the most effective use of financial and
non financial resources.
Contd..
4. Programme activities should be planned in advance.
5. Requires consistent delegation for framing and executive budget.
6. Should include coordinating efforts of various departments establishing a frame of
reference for managerial decision and evaluate managerial performance
Contd..
7. Requires an adequate checks and balance against adoption of too high and too
low estimates.
8. Must be appropriate to nature of business ,services and to the type of budget.
9. Prepared under the direction and supervision of administrator or financial officer.
Contd..
10. To be prepared and interpreted throughout the organization .
11. Requires review of performance of previous year and adequacy both
quantitatively and qualitatively.
12. Provision should be made for flexibility.
ADVANTAGES OF BUDGETING
Forces early consideration of basic polices. It requires an adequate and
sound organizational structure.
Compels all the members of management, to participate in the
establishment of goals and plans.
Helps the management to plan for the most economical use of labor,
material and capital.
Contd..
Tends to remove the cloud of uncertainty that exists in many organizations.
Promotes an understanding among members of management of their co-workers'
problems.
Aids in obtaining bank credit as banks commonly require a projection of future
operations and cash flows to support loans .It checks progress towards the objectives
of the enterprise.
DISADVANTAGES
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 o
knows precisely what will happen in the future.
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
Contd..
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.
As the end of budget period approaches and employees realize 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.