2. BUDGET
Budget- Budget is a written document which
incorporates all the business activities for a definite period. It
is an instrument for the management.
• Definitions-
• According to CIMA, London- “Budget is defined as ‘Budget
is a financial and/or quantitative statement prepared and
approved prior to a defined period of time, of the policy to be
pursued during that period for the purpose of attaing a given
objective. If may include income, expenditure and the
employment of capital”.
• According to Barfizal- “A budget is a forecast in detail of
results of an officially reorganized programme of operations
based on the highest reasonable expectation of operating
efficiency.”
3. • According to Clarence L Van Sickle- “The
budget is an estimate prepared in advance of
the period to which it applies.”
• According to H. J. Wheldon- “A budget is
thus a standard with which to measure the
actual achievements of people, departments
etc”.
• According to Brown and Howard- “A budget
is a predetermined statement of management
policy during a given period which provides a
standard for comparison with the results
actually achieved”.
4. • According to Harry L. Whytie- “Budgets
are finished products they are formed
programmes of future operations and
expected results. Budget results from
forward thinking and planning”.
• On the bases of above mentioned definitions,
we conclude that budget refers to a plan
covering all the sectors of operations
expressed in monetary and/or quantitative
terms for a definite future period of time.
Budget exhibits managerial plans and
policies, for the organization as a whole or a
part there of, to achieve business goals and
5. • Budgeting- According to J. Batty- “The entire process of
preparing the budgets is known as budgeting”. Therefore, the
term budgeting refers to the act of preparing budgets. It is the
managerial action of formulating budgets.
Business Budgeting-
• When a budget is prepared for a business firm then it is termed a
s business budget.
• Business budget is a financial document.
• Business budget depicts and shows the plans in action for the
achievement of predetermined objectives.
• Business budget can be prepared both in physical units and
financial units.
• It period may be a year, or half year or quarter or even a month.
• Business budget is prepared by a business
firm/institution/organization on the basis of budgeting principles,
and budget techniques for a specific period the all related
business activities.
6. • Budget Characteristics-
• It should reflect the managerial plans and policies
to achieve business goals and objectives.
• It is a comprehensive plan for a definite future
period.
• It is expressed either in monetary terms or
quantitative terms or both.
• Thought it is basically an instrument of planning, it
still provides the basis for performance evaluation
and control.
• It is a detailed plan.
• It is conclusion of budgeting.
• It is a written document.
• It is standard
• In preparing a business budget all the
departments of business units coordinate with
each other.
7. Nature of Budget-
• It is a means of communication.
• It is an integrated plan.
• It is prepared in a specific format.
• It is a technique.
• It is prepared for all activities of a business.
8. Objectives of a Budget-
• Most effective tool to the management for the performance
evaluation of the business activities.
• Defining responsibilities.
• Coordinating
• Help in communicating
• Useful motivating device
• Tool for controlling costs of an organization
• Increasing business efficiency
• Profit maximization
• cost reduction
• increase competitive strength of the business
• Low production cost
• Minimum waste of time, energy and moneyIt is a tool of
management
• It helps management in planning, coordination and control
• It is prepared every year by a business firms
• It helps in checking the performance.
9. • Limitations of a Budget-
• Effected by personal bias & prejudices.
• Its success depends on the efficiency of
the employees of the firm.
• Budget forecasts may prove to be wrong
when the business situations and
conditions changes.
• It leads to restriction on the freedom of
work.
• Budget is a success only when it is based
on appropriate and correct information.
