Finance

The Role of Budgeting
TEACHING OBJECTIVES
1. Introduce the purpose of budgeting.
2. Identify the 3 major budget types & their relationships
3. Show the benefits & limits of budgets.
4. Show how budgeting process works.

I. Introduction
Once a firm has identified customer needs & changes through forecasting, it needs to determine if it can be met profitably.
A . Knowing how to budget is certainly part of this process.
B. A budget is a master financial plan or a "blueprint for action" in the future & has 3 parts: Operating budget; Cash flow budget; Capital Expenditure Budget

II. The Purpose of a Budget
A. A budget is a formal estimate of future revenues & costs
1. A detailed breakdown of costs/revenues is needed for attaining profit goals: Firms have to analyze operations to develop reliable estimates of revenues & costs.
2. If budgeting is done right, it forces better thinking about the firm's goals & purpose & how to achieve them. It forces mgmt to ask what ...