Budgets help to bring spending under control and lead the way for the development of plans that enable an organization to become or remain fiscally sound. For an organization to develop or maintain financial stability, it must understand the purpose of budgeting and how to apply the various budgeting techniques that will help promote and expand the business. Budgeting requires organizations to use financial projections to attract investors and secure grants or donations, which are used to offset costs and create financial stability. An organization’s ability to create a workable budget can make the difference between financial instability and long-term fiscal health. Purpose of Budgeting
Budgeting is a tool used by organizations to plan and maintain control of its funds. A budget provides a formal guideline, written in financial terms, which can help an organization plan for future actions or activities. Budgets can help an organization to refine its goals and remain realistic about its current financial position. In addition, budgets can compel or force an organization to use the funds for the intended purpose and maintain financial efficiency. Budgets also can provide important, accurate information that affect the decision-making process. For example, a budget causes an organization to analyze and evaluate its current programs and activities in an effort to gain more control over the financial aspects of the organization (Hansen & Mowen, 2006). Furthermore, a budget can provide information needed for future planning through careful examination or analysis of the organization’s financial history. Budgeting Techniques
Two budgeting techniques that can assist an organization in gaining financial control include incremental budgeting and flex budgeting. Applying the preceding budget techniques can help an organization to budget effectively and control costs before losses in revenue or over spending can occur. The budgeting techniques...
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Hansen, D. R., & Mowen, M. M. (2006). Managerial accounting (8 ed.). Retrieved from http://books.google.com/books?id=K2Nbp7xKXjcC&pg=PA279&dq=purpose+of+budgeting&hl=en&ei=_PcsTIWcC-KLnAeYnaX0Ag&sa=X&oi=book_result&ct=result&resnum=8&ved=0CFAQ6AEwBw#v=onepage&q=purpose%20of%20budgeting&f=false
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