Chapter 8, Problem 1DQ

Define budget. How are budgets used in planning?

To determine

State the term budget and explain how budgets are used in planning.

Explanation of Solution

Budget: Budget is the process of identifying, collecting, and summarizing the financial information. Budget plan is used by the managers to coordinate the organization’s future activities.

 It is a statement which is prepared by the management for a specific period to achieve the goal of management in future. Basically, budget is expressed in the financial terms.

• The managers use the budget plan to coordinate the organization’s future activities.
• Through the budget, managers can plan a specific action to achieve the company goals.
• Through the budget, managers can compare the actual results with the estimated results and use the information to make control decisions.
• Through the budget, the managers can allocate adequate resources if there is any internal or external change in the organization.
• The budget is helpful in company expansion plan. It includes the expected funding sources and expenditures for expansion if the company plans to expand the business.