Question

State three reasons why you need to document budget and present data in clear format appropriate to budget reporting?

Answer 1

Budget needs to be documented due to following reasons:

· A Budget is a formal plan of action which is signed off by budget committee. Hence budget needs to be documented since it can be used as reference in meetings and discussions

· Comparison of Actual results with budget. Actual results are compared every month with budgets based on which deviations are discussed and actions are taken to bridge the gap.

· Performance appraisal of employees. A Budget is used as an annual target based on which performance of all managers and employees is monitored during the year end for giving out incentives

Need for presentation of data in clear format:

Budget comprises of different functional budgets like sales, purchase, manufacturing, administrative etc. Hence there should be a clear format based on which budgets will be complied on a periodic basis and will be presented to management for review. A one-point contact person shall be appointed for compiling the budget data. He will aggregate the individual budgets into overall information which is clear for review and discussion.