Purpose Of A Budget Essay

723 Words3 Pages

Purpose of a budget
Even on a personal level, we need to draft a budget so that we can see:
• how much money we have – e.g. in cash or in bank accounts and savings
• how much money we expect to bring in – e.g. wages
• how much money we need to spend – e.g. for accommodation, food, transport and leisure
• how much we need to bring in or save to achieve our goals – e.g. to buy a new car or go on holiday
The principle is similar in a business environment. Financial resources need to be managed so that a business can meet its objectives and requirements. Budgets show what money an organisation has, what it expects to bring in, how much it expects to spend, and what it needs to keep to one side to achieve its future goals.
There can be a main budget for …show more content…

Control resources By making people accountable and responsible for a budget, a business can help to control its resources. Working to a budget helps staff to understand where the business is going and helps to motivate them to use resources efficiently and effectively. Budgets can monitor actual income and expenses against projected figures to identify differences and reveal problems. This helps the organisation to take remedial action and control its resources.
Plan for the future
Budgets can also show how a business plans to allocate its resources for the future. If a business wants to expand or make investments, it needs to know what its income and expenses are likely to be before it commits to plans.
For example, if a business wants to invest in new technology and buy a new, expensive, sophisticated machine, it needs to prepare budgets to estimate:
• the capital cost of the new machine
• the running costs of the new machine
• the extra revenue that can be generated by using the new

More about Purpose Of A Budget Essay

Open Document