Budgets are part of the planning and control process. They help to define the objectives of the organisation. Budgeting is probably the most important contribution that the accounting department makes to the role of management.
The accountant draws up a plan which integrates the various functional areas of the business. Control is exercised by firstly, delegating responsibility to departmental managers for the attainment of the budgets and then the regular comparison of the actual results with the planned outcomes.
Budgets assists an organisation
- to plan and control profitability
- to plan and control production resources
- to plan and control capital expenditure
- to plan and control finance
An organisation which engages in budgeting can obtain the benefits of
- better planning and awareness of what has to be achieved
- greater coordination of the different functional areas
- better communication with staff contributing to the targets to tbe set
- motivation of the staff with staff assigned their responsibilities
- efficient and effective use of scarce resources and an awareness of cost-consciousness