Question

When should a company prepare budgets? What are the advantages of preparing budgets?

Answer 1

Budget - . A budget is a quantitative plan used as a tool for deciding which activities will be chosen for a future time period.
In a business it include estimation of future sales, Cash Collections and disbursements, Cost estimates, day to day activity plan etc.

When should a company prepare budgets - A Company should prepare a budget when the expected benefits of the budgets are greater than their expected costs.
When a Company expect to have a greater benefit in term of Cost Control, Achieving Targets, Motivation to management and Employees etc than cost of making the budget, A Company should prepare Budgets.

Advantages of preparing budgets
(a) In Budgeting, planning for activities of Company's various divisions and departments done and after implementation of budgets an analysis also done for the achieved results so budgets promotes Planning and strategic analysis    (b) Communication and Coordination among various divisions and department of the company can also be made with help of budgets
(c) Perfomace Measurement - Represents Specific, Quantitative Standards that can bee used to evalute performace

(d) Budgets motivates Company's Management and employees to work according to budgets and better perform the budgets targets