Purpose Of A Budgeting System

Purpose of a Budgeting System A successful business must have a good budgeting system in place. Kimmel, Weygandt, and Kieso state “a budget is a formal written statement of management’s plans for a specified future time period, expressed in financial terms” (Kimmel, Weygandt, Kieso, p. 1032). There are many purposes for using a budgeting system in any business. A budget is a useful tool to show managers how a company is doing financially. They can see if they are meeting sales numbers or if they are spending too much money in expenses. A budgeting system provides the managers and employees a goal or objective they must meet. If the managers deem that this goal is not going to be met, they can take action to steer the department in the right direction. A budget ensures that management will plan ahead and look into the future to see if there is trouble ahead. A budget motivates employees to make their goals so the company is successful. The budgeting process is a useful tool for mid and upper level management to make important decisions. Managers can see where the company is going and what resources are needed. Lastly, managers use this budget on a month to month basis to see how all the parts of the business are performing. The budget can show the overall health of the company.
Reference
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision making (4th ed.). NJ: John Wiley & Sons