Importance of Budgeting in Planning and Controlling

This article discusses the importance of budgeting in planning and controlling business activities. It explains the budgeting process and provides examples of how it satisfies the purpose of planning and controlling. It also explores different budgeting practices adopted by companies and comments on traditional budgeting practices. The article recommends budgeting for effective planning and control.

ACCOUNTS

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Budgeting process.......................................................................................................................3
Examples explaining the budgeting process satisfying the purpose of planning and controlling
.....................................................................................................................................................3
Different budgeting practices adopted by company....................................................................4
Comment on traditional budgeting practices..............................................................................4
Recommend on the budgeting for purpose of planning and control...........................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Accounting is the process of recording all the financial transaction in the business which
is governing the business. This includes the process of summarizing and analysing the records
which are financial in nature. The present study will outline the analysis of the article named
“Effective use of performance budgeting” (Effective use of performance budgeting, 2011). The
report will analyse the effect of budgeting over the performance of the company.
MAIN BODY
Budgeting process
Budgeting is a process which is defined as the planning for all the future related things
and business activities in order to manage and maintain the business and its working. The
process of business includes the following steps-
The first step is to update the assumptions of budget and this is essential for the company
because the company exist in the environment which is dynamic and changing. Thus, in
accordance to those changes it is essential for the company to make the changes in the budget as
well.
After this it is the duty of the budget planner that they check and analyse the available
fund which is there with the company. This is essential as this will help the company in
analysing the fact that whether the amount of money will be enough or not.
After the analysis of the budget it is essential for the company to create the budget with
the available amount of money.
Further the next step is to obtain the revenue forecast of the budget and this will include
the forecast of the revenue which the company can earn from the selling of goods and services.
Examples explaining the budgeting process satisfying the purpose of planning and controlling
It is clear that the budgeting process satisfies the purpose of planning and controlling all
the business activities. This is necessary because of the fact that the budget is a planning tool
which assists the company in planning for all the business activities. Also the budgeting can also
be treated as the controlling technique as with help of the deviation between the planned
performance and the actual performance are the activities which need to be controlled by the
company (John, 2018). For instance, form the article it is clear that the budgeting is a planning
tool as before initiating any of the activity of business first its budget is prepared. This budget is

the estimation of the possible income and expenses which will take place in the execution of the
activity. Also, for instance, the budget of sales is prepared ad not it is also a controlling technique
as if the sales will not take up to the intended sales then the company with help of the budget can
check it. For instance the sales were supposed to take place till 10000 units but in actual it took
only 8500 so the company has the deviation and then they can take the corrective actions
(Grossi, Reichard and Ruggiero, 2016).
Different budgeting practices adopted by company
From the article it is seen that the budgeting is very essential for the company and its
success as the budgeting provides the idea that which services need to be done and in what time.
Thus, there are many different types of budgeting practices which are being used by the
companies
Top down budget is a type of budgeting process wherein the primary input is made by the
top level management and executives of the company. In accordance with this budgeting process
the organizational hierarchy lays down all the rules and guidelines in accordance with which the
budget is prepared. This is majorly done because of the reason that the tp management is only
responsible for the outlining of the goals and making the budget as per the goals of the business.
The bottom approach is the one which is more inclusive and the budget is being
formulated by the lower management and the employees working in the lower level. Though the
aims and objectives are laid by the top management themselves but the budget is being prepared
by the lower level employees. This is majorly because of the reason that these people actually
works and they know better that what are the essential things and which are not. Thus, the budget
will be prepared with more accuracy by these people only.
Comment on traditional budgeting practices
Yes the traditional budgeting practices are a constraint on creativity and the time and
energy used to that work. This is true as the if the company uses the traditional budgeting process
then this will take a lot of time and this will also have a negative impact on the time and
creativity. This is majorly because of the fact that the traditional budgeting is based on the study
and analysis of the past records and sales and then on that basis the future trends are forecasted.
But if the company will make use of the modern techniques of budgeting then this will be much
better as this will assist the company in making the budget more effective and efficient (Lund
and Juujärvi, 2018). This is majorly because of the reason that the use of modern technique

includes the usage of technology and this help the company in making the budget in more
effective and simple manner. Thus, because of this reason only it is said that the use of
traditional budgeting practices constraint the creativity and time and energy spent on making the
budget with help of the traditional methods (Lumbantoruan and Mulyani, 2019).
Recommend on the budgeting for purpose of planning and control
Yes it is recommended to the companies that the budgeting is very good for the purpose
of planning and control. This is majorly because of the reason that budgeting helps the company
in both the planning and business activities and the controlling of those activities as well. This is
majorly because of the reason that before starting with any of the business activities it is essential
to plan all the activities and the requirement of the activities in advance and this will be done
with help of the budgeting tool. It is so because of the fact that the budget will provide guidance
to the company that what all necessary things they will be requiring and how they can complete
the business activity in proper and effective manner. Also, this helps the companies in getting
assistance in the controlling of the different activities of the business. This is majorly because of
the reason that in the budget the performance is planned and when the actual performance is
initiated then the company can take do a comparison between the actual and expected
performance and if there will be deviation then the company can take corrective actions to
mitigate and control the situation (Weiskirchner-Merten, 2019).
CONCLUSION
In the end it is concluded that the use of the budgeting if very essential in the business
and for its proper functioning. This is majorly because of the reason that when the company will
make the budget then the company will be knowing that what the company is expecting to do
and perform and how they will manage the working in proper and effective manner. Thus, the
current study stated the relevance of budgeting over the proper planning and controlling of the
activities of the business with help of an article.

REFERENCES
Books and Journals
Grossi, G., Reichard, C. and Ruggiero, P., 2016. Appropriateness and use of performance
information in the budgeting process: Some experiences from German and Italian
municipalities. Public Performance & Management Review. 39(3). pp.581-606.
John, K.C., 2018. Effectiveness of public sector financial planning and budgeting: MTEF
budgeting process in the Tanzania LGAs (Doctoral dissertation, University of Dar es
Salaam).
Lumbantoruan, D.L. and Mulyani, S., 2019. Planning and Budgeting: The Study of Village
Financing Process In Balige Subdistrict. Journal of Accounting Auditing and
Business. 2(2). pp.46-57.
Lund, V. and Juujärvi, S., 2018. The Role of Digital Tools in the Participatory Budgeting
Process in the Development of a Neighbourhood. Smart Cities in Smart Regions 2018.
p.92.
Weiskirchner-Merten, K., 2019. Interdependence, participation, and coordination in the
budgeting process. Business Research, pp.1-28.
Online
Effective use of performance budgeting. 2011. [Online]. Available through:
<https://search.proquest.com/business/docview/893424740/BEFCF79FACE74B26PQ/
3?accountid=30552>