Page 105 - BA2 Integrated Workbook STUDENT 2018

Budgeting

The purposes of budgeting

1.1 The purposes of budgeting

 Planning – the budgeting process forces management to look ahead, set
targets, anticipate problems and give the organisation purpose and direction.

 Control – the budget provides the plan against which actual results can be
compared.

 Co-ordination – a sound budgeting system helps to co-ordinate the different
activities of the business and to ensure that they are in harmony with each
other.

 Communication – budgets communicate targets to managers.

 Motivation – the budget can influence behaviour and motivate managers.

 Performance evaluation – the budget can be used to evaluate the
performance of a manager.

 Authorisation – budgets act as authority to spend.

1.2 What is a budget?

The CIMA Terminology defines a budget as ' a quantitative
expression of a plan for a defined period of time'.

Budgets can be set for sales volumes and revenues, resource quantities, costs and
expenses, assets, liabilities and cash flows.

For a budget to be useful it must be quantified.

‘We plan to cut the cost of running the call centre this year’

‘Budgeted expenditure for the call centre for the year to
31st December 20X8 is $100,000’

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