Budgeting Table of Contents INTRODUCTION

BUDGETING

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................1
TASK ..............................................................................................................................................1
i. Stating the purpose of budget and relevance of traditional budgetary system in relation to
the dynamic business environment.............................................................................................1
ii. Stating the alternative budgetary systems which are more suitable to the changing nature of
business environment..................................................................................................................4
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Budget may be defined as an estimation of income and expenditure for a predetermined
time period. It is the quantitative expression of plan which facilitates optimum utilization of
financial resources. Budget reflects the inflow which organization generates over a period of
time. Besides this, outflow refers to the expenses which organization has to incur to produce the
desired level of output (Ransikarbum and Mason, 2014). By preparing budget, organization can
exert control over their expenses and thereby, can maximize their profitability. The present
report will discuss the purpose due to which organization prepares the budget. Further, it also
depicts the relevance of traditional budgetary system in context of dynamic business
environment. In addition to this, it will also develop an understanding about the alternative
budgetary system which suits with the changing business arena.
TASK
i. Stating the purpose of budget and relevance of traditional budgetary system in relation to the
dynamic business environment
Budgeting is the quantitative reflection of financial plan which includes planned sales
volume, revenue, costs and expenses. It represents inflow and outflow of cash which
organization gets or incurs during the financial year. Budget is also the expression of strategic
plan and strategies of business unit and organization in measurable terms. Finance manager of an
organization plays a vital role in preparing the budget which facilitates optimum utilization of
financial resources (Kelly and Rivenbark, 2014). Finance manager prepares the budget by
making forecast of income and expenses. In the present era, each and every organization frames
budget which enables them to make control on unnecessary expenditures.
Purpose of budget: One of the main purposes of budget is to spend money wisely.
Besides this, another objective behind preparation of the budget is enumerated as below:
 Forecast of the income and expenses: Budgeting is the main aspect of planning process of
an organization. In order to survive in the dynamic business environment, finance
manager needs to make forecast of income and expenses. They need to estimate that
whether business or the project will give profitable return to them in the near future or
not. Budgeting sheds light on the business performance to assess the way in which
business will perform in the near future in financial terms (Buntak, Drožđek and Sesar,
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2014). In budgeting, finance manager make forecast or prediction of business expenses
and income by taking into consideration the time value of money concept. Through this,
company is able to frame the suitable budget for concerned financial year (Glass,
Stefanova and Prinzivalli, 2014). It also enables employees to perform business activities
and functions in accordance with the budget. This aspect reduces the wastage of money
and thereby, facilitates better utilization of money to a large extent.
 Monitoring of business performance: The main purpose of budgeting is to monitor the
business performance of an organization. Through budget, finance manager can evaluate
the extent to which organization has utilized their money. One of the main purposes of
budgeting is assessment of deviations which occurred in the use of financial resources.
By comparing the actual performance with the standard performance, finance manager
can easily assess the deviations which occurred in the performance of corporation.
Besides this, budgeting also helps the corporation in assessing the areas of expenses upon
which company needs to make control (Hagel, 2014). Through this, organization is able
to undertake the suitable measures which help them in achieving success in the
competitive business environment.
 Optimum utilization of the financial resources: One of the main purposes of objective of
budget is to make proper utilization of financial resources. Budget provides deeper
insight to the employees about money which is available to them in order to carry out
business functions and activities. This aspect prevents confusion in the mind of
employees and thereby, facilitates proper use of the financial resources.
 Decision making tool: Budget provides assistance to the corporation in making effective
decisions which makes contribution in the achievement of organizational goals and
objectives. It provides deeper insight about the cash which organization will generate
over a period of time. In addition to this, it also provides information about the expenses
which organization will incur on different types of business activities and functions
(Sandalgaard and Nikolaj Bukh, 2014). Through this, corporation can easily identify the
cash which is available within organization. It enables the finance manager to make
proper investing and financing decision by taking into consideration the inflow and
outflow of cash.
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