Budget Is: Definition, Purpose, Characteristics, Benefits and Methods of Preparation
Budget Is: Definition, Purpose, Characteristics, Benefits and How to Prepare – What is meant by Budget? At this time About the knowledge.co.id will discuss about the Budget and the things that surround it. Let's look at the discussion together in the article below to better understand it.
Budget Is: Definition, Purpose, Characteristics, Benefits and Methods of Preparation
Budget (Budget) is a plan that is arranged systematically, which includes all activities company, which is expressed in financial units (monetary units), and is valid for a certain period of time will come.
Definition of Budget According to Experts
Nafarin, 2004:12
A budget is a periodic financial plan that is prepared based on an approved program. Budget is a written plan regarding the activities of an organization which is expressed quantitatively and generally expressed in units of money for a certain period of time. (Nafarin, 2004:12)
Suharman (2006:76),
Basically, a budget is a tool used in a company or business organization to disclose activity plans in units quantitative, coordination and implementation as well as controlling operational activities as well as assessing managerial performance in an organization company.
Hope (2001:15)
Budget 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 for a certain period, especially in the future.
Budget characteristics
According to Gunawan and Asri (2003)
According to Gunawan and Asri (2003), several important characteristics of the budget are:
- Budgeting must be realistic, meaning that it must be in accordance with the company's financial condition. Unintentionally exaggerating to get more expectations even though according to the existing reports this is not possible.
- Budgeting must be flexible, able to adjust to conditions.
- Budgeting must be continuous. Budgeting is a process that must be considered continuously, so that costs are reduced issued not deviate and in accordance with what has been prepared and the minimum acceptance is in accordance with what has been prepared estimated.
- Budgeting must be communicated Well, Communication is the main key in budgeting success.
- Can provide motivation for company members, motivation to achieve company goals that have been mutually agreed upon.
- Encouraging participation Encouraging workers to equally participate in preparing and executing the budget. The effect is that they will work with enthusiasm because they feel they "own" the business too.
According to Mulyadi (2001:490)
According to Mulyadi (2001: 490), the characteristics or characteristics of a budget include:
- Stated in financial units and units other than finance. Covers a specified period of time, usually one year.
- Contains management's commitment or ability to accept responsibility for achieving the set goals.
- Will be subject to review and approval by a party with higher authority.
- Periodically, the actual financial performance is compared with the budget, if there is a discrepancy, the cause is explained.
Budget Preparation Purpose
According to Nafarin (2004), the purpose of preparing the budget is:
- Used as a formal juridical basis in selecting sources and investment funds.
- Provides limits on the amount of funds sought and used.
- Specify the type of source of funds sought as well as the type of investment funds so as to facilitate supervision.
- Rationalizing sources and investment funds in order to achieve maximum results.
- Refine the plans that have been prepared because the budget is clearer and more visible.
- Accommodate and analyze and decide on any proposals related to finance.
According to Cristina (2001:4), the purpose of preparing the budget is:
- State the company's expectations or goals in a clear and formal manner, so as to avoid confusion and provide direction for what management will achieve.
- Communicating management expectations to relevant parties so that the budget is understood, supported and implemented.
- Provide detailed plans regarding activities with the intention of reducing uncertainty and providing clear direction for individuals and groups in an effort to achieve company goals.
- Coordinate the method or methods to be taken in order to maximize resources.
- Providing measurement tools and controlling individual and group performance, as well as providing basic information on whether or not corrective action is needed.
Budget Functions and Benefits
Following are some of the benefits of a budget, consisting of:
- Forces managers to plan,Budgets force managers to develop general directions for the organization, anticipate problems and develop policies for the future
- Provide information that is used to improve decision making
- Providing performance evaluation standards, the Budget provides standards that can control the use of various resources and motivate employees
- Improve communication and coordination,Budgets formally communicate organizational plans to each employee. So all employees are aware of the role and achievement of these goals.
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 a clearer picture in terms of units and money
Execution Function
The budget is a guideline in the implementation of work, so that each job contained in the activity in the industry is carried out in harmony in an effort to achieve the goals that have been formalized. Thus, the budget is important for aligning (coordinating) each part of the activity, such as the marketing department, the universal part, the creation part and the finance part.
If one of the divisions cannot carry out the task according to what has been planned, it will cause the other divisions to fail as well unable to carry out their duties in a harmonious, planned and coordinated manner according to what was planned or what has been agreed upon in budget. This shows the active position of the budget as a tool for coordinating work in helping industrial management carry out its functions and duties.
Oversight function
The budget acts as a monitoring tool (Controlling), this means that the budget is used to evaluate (take into account) each implementation of the work, by the method of comparing the realization with the plan (budget) and carrying out revision actions if deemed necessary (if there are deviations). harm).
How to Prepare a Budget
According to Gunawan & Asri (2003:7)
According to Gunawan & Asri (2003:7), the requirements for compiling a budget include:
- Realistically, this means not too optimistic and not too pessimistic.
- Flexible, this means not rigid and easy to adapt to changing circumstances.
- Continue, this means that it requires continuous attention.
- Have the ability to communicate effectively.
- Have the ability to motivate its members.
- Have the ability to encourage participation.
According to Stoner and Freeman (1995:570)
According to Stoner and Freeman (1995:570), there are 2 (two) ways to prepare a budget, namely:
Top-Down Budgeting
Top-Down Budgeting is a method of budgeting that is set by the highest level of industry leadership with little or no consultation with basic level managers. The advantage of Top-Down Budgeting is that it shortens the budget setting time. On the other hand, the weakness of Top-Down Budgeting is that it does not take into account the needs of each part properly, because everything is a unilateral decision from the top manager.
Bottom-Up Budgeting
Bottom-Up Budgeting is a budget arrangement method prepared by those who wish to carry out the budget. The advantage of using Bottom-Up Budgeting is that the budget is prepared based on the part that needs funds or the part that wants it share income for the industry, so that the allocation of funds becomes more accurate or in other words the level of accuracy of the budget is very high big. But the weakness of Bottom-Up Budgeting is that it takes quite a long time.
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