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In: Accounting

What are six principles of good budgeting?

What are six principles of good budgeting?

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Expert Solution

Six Principles of Budgeting

  1. Be Conservative: This means while preparing budget all the possible scenarios must be forecasted. Don’t be 100% sure that actual working will be as per budget. Making a conservative budget keeps the management ready to tackle every possible threat that are predicted in the budget.
  2. Group Effort: Its not possible that one person has the knowledge of everything, that is why a proper budget is prepared by a group of individuals having expert knowledge in their own fields. In other words Team work and Consultation is very necessary in Budget Preparation
  3. Allow Plenty of Time: A budget is considered an important tool for management. It helps management to take decisions like whether to do a job or not. A reasonable amount of time must be given in order to make Budget precise and correct in all senses since a wrong budget can cause great financial losses to an organization.
  4. Training Personnel: People engaged in the work of Budget preparation must be trained to do their jobs. The effectiveness of a Budget lies in the efficiency of person making it. People making budget should have proper knowledge of various business scenarios so that they can make a budget which is complete and accurate.
  5. Proper Documentation and Presentation: A Budget prepared must be easily understandable by anyone who sees it. Budget must be presented in a proper format so that various calculations can be seen in the budget.
  6. Taking Responsibility: The personnel must state their involvement in budget preparation. The Budget must be signed by people who made it so that necessary actions can be taken in future. It also helps in rewarding employees who made good efforts.

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