Why are Budgets prepared? Remember there are different types of budgets.
Monitoring and control – comparison of actual performance with the budget
Allows the firm to take corrective action, eg increase production to meet forecast sales
Allows managers to organise resources
Sets targets for management and employees to reach
Individual managers/departments can be allocated budgets so that control is tighter
Cash budgets highlights periods when a negative bank balance is expected so finance can be arranged in advance
Forecasting cash surpluses allows a firm to invest money in assets
Allows managers to identify problems
Offer solutions
Plan for the future
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