For the purpose of this study budget is defined as a

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For the purpose of this study, budget is defined as a quantitative statement, for a defined periodof time, which may include planned revenues, expenses, assets, liabilities, and cash flows thatprovides a focus for an organization, as it aids the coordination of activities, allocation ofresources, and direction of activity, and facilitates control. From the definition of budgets threekey components can be distinguished. Firstly, there exists the planning aspect of budget. The8
plan is regarded as the statement of intent or goal of the organization. The second aspect is themeasurability. This makes it possible to measure the plan. The third component is time. It givesthe possibility to say if the plan has been achieved.Purpose of BudgetingAside from determining the financial needs, other purpose of budgeting is to assess the socialspending in any country (Schmidt, 1992). Other essential reasons for having a budget plan is toeffectively allocate resources, coordination, rendering tasks, dimensioning of the activities of thecountry, efficient communication and a foundation for incentive systems. The process ofpreparing and agreeing budgets is a means of translating the overall objectives of theorganization into detailed, feasible plans of action. Budgeting, at both management level andoperation level looks at the future and lays down what has to be achieved. According to Akintoye(2008), budgeting is the best tool for making sure that key resources, especially performanceresource are assigned to priorities and to results. It is a tool that enables the manager to knowwhen to review and revise plans, either because results are different from expectation or due toenvironmental, economic conditions, market conditions or technologies change, which no longercorrespond to the assumptions of the budget.Budgets should be used as a tool for planning and control. Control checks whether the plans arebeing realized and put into good use and whether deviation or short-falls are occurring (Otley,2003). Otley (2003) emphasized that without effective controls, an enterprise will be at themercy of internal and external forces which can disrupt its efficiency. Thus makes it difficult forsuch companies in combating such forces. According to Otley (2003) control involves the9
making of decisions based on relevant information which leads to plans and actions that improvethe utilization of the productive assets and services available to organizations management.Effective control is said to be based on standards with which actual performance can becompared (Akintoye, 2008). If there are no standards, then there can be no effective measure ofattainment. Effective control is a key management task which ensures that efforts produced at alllevels are commensurate with those required to ensure the long-term future effectiveness andsuccess of the organization (Reid and Smith, 2000; Nolan, 2005).

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Term
Winter
Professor
N/A
Tags
Accounting, Finance, Economics, Management, United Kingdom budget, Composite Budget

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