Objectives of Budgeting

Budget is prepared by everyone whether it’s a big company or small household, whether it’s a big businessman or a child who has to make budget about how to spend his or her pocket money. A budget in simple terms is a plan which company or household make for their future expenses and incomes. Given below are some of the objectives of budgeting

  1. A budget helps the company in forecasting the future cash inflows and cash outflows and therefore if cash inflows is more than cash outflows than company make provision for investing surplus cash into some profitable investments
  2. Budget also helps the company in comparing the actual results with the budget and if any discrepancy is there then company can take steps to ensure that such mistakes are not repeated again.
  3. Budget helps the company or household to project any shortfall in income and therefore making provision in advance so that they do not face difficulty when the need for money arises.
  4. Budget can be extremely helpful if company is into business where the credibility is of utmost importance because if company has budget statement in advance than company will know in advance about the obligations and therefore it will make adequate provision for such obligations and hence the company will not have to face any embarrassment.
  5. Budget is also a sort of motivational tool because if company or top management has prepared a budget and all the employees are made aware of that budget than employees of a company will also be motivated to achieve the desired results which are laid out in budget and therefore it can be a great source of motivation for the employees of the company.
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