Budgeting is the central point for planning and control within an organization.
Budgeting not only establishes a framework for planning and estimating but LAO provides an end-of-period set of measurement criteria to compare the effectiveness of the initial assumptions and planning process.
Budgets require management to set goals, objectives and financial limitations that affect the entire organization.
Budgets encourage the organization to establish standards and implement uniform procedures throughout the organization.
Budgeting is best implemented as a 'bottom-up' procedure in which department budgets are created and used to develop organization budgets that are based on realistic numbers determined by the lower level organizations that know the numbers best.
The Budget Business Area Model consists of a variety of interrelated budgets and common supporting data:
|Sales Budget||Manufacturing Budget|
|Production Budget||Cash Budget|
|Materials Budget||Pro Forma Balance Sheet|
|Operating Budget||Budget Compliance|