√ Definition of Budget, Purpose, Benefits and How to Prepare It (Complete)
Definition of Budget, Purpose, Benefits and How to Prepare It (Complete) – In this discussion, we will explain about the Budget. Which includes the meaning, purpose, benefits and how to compile a complete and easy-to-understand discussion.
Definition of Budget, Purpose, Benefits and How to Prepare It (Complete)
For more details, please see the review below carefully.
Definition of Budgets
A budget is a periodic financial plan made according to an approved program. The budget is also defined as a written plan regarding the activities of an organization which is expressed quantitatively and is generally expressed in units of money for a certain period of time (Nafarin, 2004:12). Apart from Nafarin, the definition of a budget according to other experts, namely:
1. Suharman
The definition of a budget according to Suharman is a tool used in a company or business organization to disclose internal activity plans quantitative units, coordination and implementation as well as controlling operational activities and assessing managerial performance in an organization company.
2. Hope (2001:15)
The definition of a budget according to Harahap is a concept that helps management, it dissolves in management functions, helps and facilitates management in achieving goals. The budget consists of a series of estimates that can be used as a program to carry out company activities in a certain period, especially in the future.
Characteristics of Budgets
Mulyani (2001: 490) states, the characteristics or characteristics of a budget include:
- Described in financial units and units other than finance. Covers a specific time period, often a year.
- Contains management's commitment or ability to accept responsibility for achieving the set goals
- Will be subject to review and approval by a higher authority
- Periodically, the actual financial performance is compared to the budget, if there is a discrepancy, the cause is explained.
Budget Preparation Purpose
Nafarin (2004) explains what is the purpose of the budget, namely:
- Utilized for a formal juridical basis in determining a source and investment funds.
- Provides limits on the amount of funds sought and used.
- Detailing the type of source of funds sought or the type of investment funds can make supervision easier.
- Rationalize sources and investment funds in order to achieve maximum results
- Make improvements to the plans that have been prepared because the budget is clearer and more visible
- Accommodate and analyze and make decisions on every proposal related to finance.
Cristina (2001:4) also states, the purpose of preparing a budget includes:
- State the company's expectations or goals clearly and formally, avoiding confusion and giving direction to what management wants to achieve
- Communicating management expectations to relevant parties allows budgets to be understood, supported and executed.
- Present a detailed plan of activities with the intention of reducing uncertainty and providing clear direction for individuals and groups in an effort to achieve company goals
- Coordinating the methods or methods to be carried out in order to maximize resources.
- Provide measurement and control tools for individual and group performance and also provide basic information on whether or not corrective action is needed.
Budget Functions and Benefits
According to Nafarin (2004:15-17) the functions and benefits of the budget are:
Planning Function
A budget is a written planning tool that requires careful thought and will provide clearer directions in terms of units and money. An example is to plan the highest profit. In the budget, the highest profit plan is formulated carefully and clearly, namely stated quantitatively.
Execution Function
The budget is a guide in carrying out work, making every work in the company's activities carried out in harmony in an effort to achieve the goals that have been set. Thus, the budget is very important for aligning (coordinating) each part of the activity, such as marketing, general, production and finance.
If one part (department) cannot carry out the task in accordance with what has been planned, it will cause the division to fail other (departments) also cannot carry out their duties in a harmonious, directed and coordinated manner according to the plan or as agreed in the budget.
This illustrates the active role of the budget as a tool for coordinating work in helping company management carry out its functions and duties.
Oversight function
The budget functions as a monitoring tool (Controlling), this means that the budget is useful in the evaluation (assessment) of each implementation, work, by comparing the realization with the plan (budget) and taking corrective action if deemed necessary (if there are deviations). harm)
How to Prepare a Budget
Gunawan and Asri (2003:7) state, the requirements for compiling a budget include:
- Realistically, this means being too optimistic and not too pessimistic
- Flexible, this means not rigid and easy to adapt to changing conditions
- Continue, meaning that it requires continuous attention
- Have the ability to communicate effectively
- Have the ability to motivate its members
- Have the ability to encourage participation
Whereas Stoner and Freeman (1995: 570) explains that there are two ways to prepare a budget, namely:
Top-Down Budgeting
Top-Down Budgeting is a way of preparing a budget that is set by the top management of the company with little or no consultation with lower-level managers. The advantage of Top-Down Budgeting is that it shortens the budget preparation time.
Meanwhile, the weakness of Top-Down Budgeting is that it does not take into account the needs of each section properly, because all of them are unilateral decisions from top managers (top managers).
Bottom-Up Budgeting
Bottom-Up Budgeting is a way of compiling a budget that is prepared by the party that will run the budget. The advantage of using Bottom-Up Budgeting is that the budget is made on the basis of the part that requires funds or the part that will provide income for the company, making the allocation of funds more accurate or in other words the accuracy of the budget is very high tall. But the weakness of Bottom-Up Budgeting is that it takes quite a long time.
Thus has been explained about Definition of Budget, Purpose, Benefits and How to Prepare It (Complete), hopefully can add to your insight and knowledge. Thank you for visiting and don't forget to read other articles.
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