Question

Why is a budget considered the most important financial document in both governments and non-profits?

Answer 1

Solution: Budget is a financial document which provides the well-educated guess or the estimated projection of organization's income and expenditure for a stipulated time period.

Now, we must agree on the fact that either government or nongovernment organization and their profitability primarily depends on the budgeting process because on the basis of past trends, the future can be predicted and planning can be made in the same direction.  

(1) In case of government organizations, incurring public expenditure with due care is a great responsibility and budgets helps in determining the wasteful activities on which the money can be saved. In case of nongovernment organizations, the budgeting facilitates in prioritizing the spending pattern for optimum utilization.

(2) In case of government organizations, budgets help in focusing on the social goals through efficient spending and managing of expenditure and in case of non-government organizations, budgets play an effective role in focusing on economic goals.

(3) Since income in case of nongovernment organizations and sources of revenue in case of government organizations can be easily predicted with the help of budgets and can be matched with the estimated expenditure to forecast the profits.