Question

Most every firm has a budget. In many cases, however, firms use them inappropriately. In extreme cases, the way the budget is used by the firm might actually encourage incorrect decisions. In this discussion, you will get a better feel for how to appropriately use budgets as a guide.

Explain why budgeting is important for a firm. Do you think that a firm’s budget should ever be violated (exceeded)? Explain your rationale.

Answer 1

Budgeting is a process of saving money or creating such a plan using which you can spend money in such a way which will be beneficial for you.
Such a spending plan is known as budget.
Everyone uses budget, as budget is helpful in making savings.
Budgeting is used for creating future spending plans and locating the sources of income and expenses. Budgets are made monthly, half yearly or full early.

Budgeting is important for a firm in the following ways :-

• It helps the firm to figure out its long-term goals and work towards them.
• It insurance that the firm do not spend the money which the firm don't have otherwise there are most likely chances of the firm going into liquidation.
• Budgeting helps the company/firm to overcome any emergency situations.
• Budgeting also helps in analysing the wrong spending of the firm.

The firms budget can be violated sometimes whenever there is another option not available or it can be said that the firm may violate it's budget only whenever necessary.
Otherwise violating firms budget should not become a habit. This may lead to improper management.

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