Understanding of Budgets

Essay by rossixinUniversity, Bachelor'sB, August 2006

download word file, 12 pages 4.8

Introduction of budgeting (definition, process, varying roles)

Budgeting is the key to good management. This is true for individuals, small family-owned companies, new high-technology companies, large corporations, government agencies, and nonprofit organisations. Managers and others in positions of responsibility must plan on a daily, weekly, monthly or annual basis if they are to operate efficiently. Because of the importance of money to businesses, and because of the fact that it is the common denominator in all departments, the vast majority of enterprises produce budgets as an aid to planning.


Budgeting is a vast and very important managerial accounting area. It is a coordinated financial plan reflecting the agreed policy and detailed intentions of an enterprise for a future period. A good definition of budget is given by CIMA (Chartered Institute of Management Accountants).

A budget is a plan expressed in money. It is prepared and approved prior to the budget period and may show income, expenditure and the capital to be employed.

May be drawn up showing incremental effects on former budgeted or actual figures, or may be compiled by zero-based budgeting. (Leslie Chadwick. Management Accounting. 1998. Page 103)

A budget is a detailed plan which sets out, in money terms, the plans for income and expenditure in respect of a future period of time. It is prepared in advance of that time period and is based on the agreed objectives for that period of time, together with the strategy planned to achieve those objectives.

Budgetary Process

The budgetary process has to be administered effectively in terms of initial planning, final approval and subsequent monitoring of implementation. The principal stages of budgetary process are:

1. communicate the details of objectives and strategy to those responsible for preparation of budgets;

2. communicate the details of budget preparation...