Budgets

Budgets

Forecasts or plans for the future finances of a business, setting out targets, costs, and financing.

Income budget

A target for the amount of revenue to be achieved in a set period of time.

Expenditure budget

A limit on the amount to be spent in a given period of time.

Profit budget

A target for the surplus between income and expenditure in a given period of time.

Purpose of setting budgets

Provides quantifiable targets for measurement, aids in planning and decision making, motivates budget holders.

Advantages of budgets

• Help control income and expenditure

• provide clear targets for managers

• delegate authority

• focus on costs

• force monitoring and highlight waste

• help coordinate departments

• reveal areas for corrective action.

Disadvantages of budgets

• Can cause resentment and rivalry

• miss opportunities

• restrict creativity

• time-consuming and expensive

• diminished value if actual results differ.