Question

(a) What is a budget?
(b) How does a budget contribute to good management?

Answer 1

a) A budget is a plan of action for future expressed in monetary terms. A budget is usually defined for a period of one year and it contains different functional budget. A Master budget is typically defined at the beginning of the period for an organization. A maser budget contains budgeted Income statement, budgeted balance sheet and budgeted statement of cash flows with all functional budgets.

b) A budget helps a firm in achieving its strategic business objectives. It brings divisional accountability and responsibility and helps in bringing discipline in ways of working in an organisation. It is an instrument for cost control and cost reduction. It helps a firm in efficient allocation of its resources to the operations of the company. It helps in performance measurement in the organisation and motivates employees to give their best for the organisation. It helps in profitablity planning at different levels of operations and taking reliable decision making. Thus it promotes and contributes to good management.