Budget

TOPIC
BUDGET
Introduction to Budget
What is Budget?
A Budget is a statement that gives the details of ‘where money comes from’ and ‘where the money goes to’.
In technical terms, the money that ‘comes in’ is referred to by terms such as income, revenue, receipts, etc.,
and the money that ‘goes out’ is referred to as expenses, expenditure, spending, etc.
A Budget has to have at least three details:
• It has to be for an entity, and for a defined purpose: an individual, an event, an organization, a household, a
business, a government, etc.
• It is for a defined time period: generally, a budget is drawn up for a year, but this can vary. For example - in
the case of events or projects, budget can be for the duration of those events/projects.
• It gives details of receipts and expenditure: it lists all the sources from where money comes, and all the
destinations where the money will go.
Meaning of Budget
A budget is an estimation of revenue and expenses over a specified future period of time and is
usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a group
of people, a business, a government, or just about anything else that makes and spends money.
Or
In other words, it’s an estimate of how much money you’ll make and spend over a certain period
of time, such as a month or year.
Definition:
Budget is an operational plan, for a definite period usually a year. Expressed in financial terms and
based on the expected income and expenditure.
Or
Budgeting is a concrete precise picture of the total operation of an enterprise in monetary terms.
- H.M. Donovan
A business budget is a plan covering all phases of operation for a definite period in the future.
- G.A. Welsch
Scope of Budget
The scope of a budget broadly covers the following:
1. To define the business objectives precisely and establish the performance targets.
2. To delineate the responsibilities of each department as well as each personnel.
3. To create a standard benchmark for measuring performance.
4. To identify the reasons for variation, if any, and take necessary corrective actions.
5. To ensure optimal utilization of available resources to improve productivity as well as

profitability.
6. To monitor and revise the budgetary plans in case there is any such requirement due
to changing environment.
7. To articulate long-term policies with maximum accuracy.

Importance of budget
1. Needed for planning future course of action and control over all activities in the organization.
2. Facilitates coordinating operation of various departments and sectors.
3. Helps to weigh values and make decision when necessary.
4. Budgeting Keeps You On Track For Your Financial Goals
5. Budgeting Helps You Find Financial Contentment.
6. Budgeting Keeps You From Feeling Financially Overwhelmed.

Advantages of budget
1. Management and control: A budget provides a strategic plan of action. It creates a caution over the expenses that can be borne
by the institution or an individual. It, therefore, helps to check and make decisions on the basis of their capacity.
2. Evaluation of policies: A budget allows an evaluation of the goals and policies which are set as guidelines for taking further
decisions over the spending.
3. Capital reinforcement: With a good budget a company or an individual can make the best use of their available resources and
capital wherever they can be applied for more productivity and profit.
4. Promotes competition: A budget can help in effective competition between organizations and individuals if they are well aware
of their financial status as well as are able to make an adequate estimation on their activities and operations to earn profits.
5. Systematic and organized: The approach of a budget is very systematic and disciplined which ensures a successful study and
implementation of the plans and actions of the company or individual.
6. Constructive: A budget does not allow any of the resources or money to go wasted as it provides a guideline to follow to make
use of them constructively.
Disadvantages of budget
1. Inaccurate and unrealistic: A budget is based on assumptions and judgments. If there is any change in the
business plan or implementation the whole prediction over the budget plan will get affected. The results of a
budget plan, therefore, are always unpredictable and can be inaccurate sometimes.
2. Inflexible: A budget is formed depending on certain policies of an institution or goals of an individual that leads
to decision-making. However, if there is any need to review the financial status considering any change in the
market there is no way the budget can be altered.
3. Finance oriented: The budget does not support the interests and requirements of the people. It is more profit-
oriented which is more quantitative while the needs of the people are more qualitative in nature.
4. Time-consuming: The process of planning a budget Or budgeting is a time-consuming affair. It needs to

consider all possible aspects of an organization or an individual before ensuring any expenditure or spending
towards a particular goal.
5. Conflicts: The failure of a budget plan can result in a lot of arising tensions and rifts within the company that
ultimately get reflected by the inefficient running of the organization.
Types of budget
1. Operating budget(revenues and expenses): provides an overview of

agency function by projecting the planned operation for upcoming year.
Deals with salaries, medical-surgical supplies, office supplies, laundry
services, books periodicals, recreation and contractual services.
2. Capital expenditure budget: related to long range planning. Includes

physical changes(replacement and expansion of plant, major equipment's
and inventories). They are major investment and reduce flexibility in
budgeting.
3. Cash budget: planned to make adequate funds available and to use extra funds
profitably. Should not have too much cash on hand during budgetary period.
4. Labor and personnel budget: Estimate cost of direct labor necessary to meet
agency objectives.
Determine the recruitment, hiring, assignment, layoff, discharge of personnel.
Manager has to decide number of aids, orderlies required during a shift months and
areas.
5. Flexible budget: some costs are fixed, others changes with volume of
business. Some expenses are unpredictable and can be determined only after
change has begun. Periodic reviews required to compensate for changes.
6. Strategic planning budget: long range budget for long range planning. Projected for
3-5 years. Programmed budget is a part this budget.
conclusion
Budgeting is one of the most important financial habits you can adopt. Between
helping you achieve your financial goals, keeping you from getting financially
overwhelmed, and even helping you avoid or get out of debt, there are so many
reasons to live on a budget. The real question is, why wouldn’t you?

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TOPIC

A Budget has to have at least three details:

The scope of a budget broadly covers the following:

2. To delineate the responsibilities of each department as well as each personnel.

3. To create a standard benchmark for measuring performance.

5. To ensure optimal utilization of available resources to improve productivity as well as

7. To articulate long-term policies with maximum accuracy.

2. Facilitates coordinating operation of various departments and sectors.

3. Helps to weigh values and make decision when necessary.

4. Budgeting Keeps You On Track For Your Financial Goals

5. Budgeting Helps You Find Financial Contentment.

6. Budgeting Keeps You From Feeling Financially Overwhelmed.

4. Time-consuming: The process of planning a budget Or budgeting is a time-consuming affair. It needs to

1. Operating budget(revenues and expenses): provides an overview of

2. Capital expenditure budget: related to long range planning. Includes

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