CIMA P1 Syllabus B. Budgeting - Why Organisations Use Budgeting - Notes ^{1 / 6}

A budget

is a plan of what the organisation is aiming to achieve and what it has set as a target. It is a combination of financial and non-financial data set by reference to key budget assumptions.

A forecast is an estimate of what is likely to occur in the future.

The budget is 'a quantitative statement for a defined period of time, which may include planned revenues, expenses, assets, liabilities and cash flows'.

The objectives of a budgetary planning and control system are:

1. To ensure the achievement of the organisation's objectives

2. To compel planning in line with the objectives of the organisation. Planning encourages management to anticipate problems before they arise.

3. To communicate ideas and plans to individual managers

4. To coordinate the different activities so that managers are working towards the same common goal. A budget is formally approved and accepted as realistic by managers

5. To evaluate the performance of management

6. To establish a system of controlling costs by comparing actual results with the budget

7. To motivate employees to improve their performance and beat targets