Question

A junior accountant new to the job has asked you (the accounting guru) what budgeting is all about. Why is it important, where do we start, what are the steps, is one are more important than the other, how does budgeting help us? What do you answer?

Answer 1

in simple words budget means plan or planning future through estimations

A bussiness organisation have to perpare a budget (for future period) in order to estimate future expenses and futures incomes so that is able to attain desired objectives the process of preparing budget is called budgeting

budget has the following four essential elements

1.A budget is prepared prior to a defined period of time

2. It is prepared for a definite future period

3. The policy is to be followed to attain the given objectives is defined before the budget is prepared

4. The budget is monetary and or quantitative statement of that policy

IMPORTANCE OF BUDGETING

1.It helps to create spending plans

2.Helps to ensure liquidity and to maintain liquidity

3. It gives track and control on expenses

4. Helps in decision making

5.Helps in proper future plannings

6. Helps in long term decision makings

steps in budgeting processes

1. Defination of objective we need to know the objective

2. Locations of key factors ;there is usually one factor(sometimes there may be more than one) which set a limit to total actvity such factor is known as key factor it must be located and estimated properly

3. Appointment of controller :

4. Budget manual : it is collections of doucements contains key information

5. Budget period:the period covered by budget is budget period it is essential in budget planning

procedure is

1. Ascertain the incomes compute the estmation of income from all the sources

2. Ascertain the cost to be incurred during the period

3. Compare income and expenses and plan

4. Create the budget if incomes and expenses are okay then create the budget otherwise make changes acordingly

5. Monitor the budget :continues reveiwing the budget is important to make use more and to known the deviations

HOW DOES BUDGET HELPS

1. Contineous comparision of actuals with budgets helps to know the variences

2. Helps to take remedial measures to achieve desired objectives

3. It helps to cover each and every section and functionof he organisation

4. It helps in optimum utlisation of organisation resources

5. It helps in decision making processes

6. It helps in performance evaluations