What is the budgeting and what reason for budgeting ?

Bugdeting involves planning in numerical terms. It prepares to know the future in advance. It is always better to forcast/estimate financials based on reliable information. Budget is a tool for effective planning.

Budgeting is a planning for the next year and years to come, for a person or organization.

Concerning budgeting in Fianance, we make budgets every year, to estimate the future outcomes of the next year in details. Budgeting enables us to know about income and expenditures, assets to be purchased or disposed, and cash flow movements. We can then estimate additional funds required, if any, for the running of business.

On the other hand, budgeting also provides a control criteria. We can compare figures of budgeted amounts with the acutal amounts month by month and look for reasons, and take corrective decisions.

Also another benefits is that we can appriase the performance of managers based on budgets and actual outcomes.

Budgeting simply means:-

is the act of combining your income and expenses so that you can decide how much money you are going to spend on one item, how much on another, and so on-before you actually spend the money.

• Get a grip on your spending
• Build an Emergency Cash Fund
• Find ways to cut costs
• Set and prioritize financial goals

Budgeting is financial planning tool used by the management to predict expenses and income of future period and planning allocation of appropriate resources available to the management. Reason of conducting this exercise is to estimate in advance about the future events that could have a negative or positive outcome for the organisation and prepare for them in advance.