Understanding of budget management, purpose, type, and budgeting tips

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Understanding of budget management, purpose, type, and budgeting tips

Understanding of budget management purpose type and budgeting tips

Knowing the definition of budget management? The budget is one of the things that is closely related to the world of accounting and finance. A company always has a budget as the most important aspect of the company’s operational section. And history that is often used is related to regulating the budget systematically called budget management and carried out before carrying out certain activities.

Before going further to know the relationship of budget management on the company’s operations, it would be better if you understand the budget further.

In this article we will discuss understanding, type, purpose, even tips on doing budgeting. Here is a complete discussion:

Understanding of budget management

Previously, you easier to understand the budget itself? The budget management itself is usually used to refer to the financial plan of a body or company for future activities. This is closely related to planning or forward views on strategies that need to be done in order to achieve a goal.

The budget is a plan prepared systematically in the form of numbers and needs to be stated in the monetary unit. The components listed in their own budget usually include all company activities in certain periods in the future. Because this plan is compiled in the form of a monetary unit, the budget itself is commonly called budget management.

Money occupies an important position in this budget itself so it is necessary to measure the effectiveness of an activity. Another word commonly used is budgeting that means the official commitment of management. Some of the management commitments are income, costs and transactions that will be carried out in the future.

Budget Management Destination

After knowing the budget management, then it knows some of its goals. There are several important objectives of the budget management themselves because indeed their position is quite central. Usually some goals to be achieved from this budget setting, namely:

1. Map corporate targets

The most fundamental goal of the preparation of the budget and management is to get the company’s target image clearly. The hope, from this budget management itself the company can adjust and develop priority activities that need to be done. In the end, the final destination for preparation of budgets is that the company can have a definite and planned motion direction.

2. Communicate a budget plan

The implementation of the budget itself will not be held by the management section itself but also related fields. When the budget preparation is carried out, it is expected that the parties related to implementation can understand the financial condition later. With this, related parties can plan again for activities later so they can be implemented.

3. Provision of detailed plans

Often a small-scale business entity does not have a detailed plan of financial projections to be carried out. But this will not happen to a large and professional corporate body that has noticed the future.

The existence of budget management can provide financial plans in detail so that expenditure is more directed and the absorption of funds becomes efficient

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4. Coordinate methods

The existence of budget management makes all elements of a division and members in businesses can carry out related coordination and ways that will be shared together. This is certainly done so that the financial resources to be used can be used optimally.

5. Providing measuring instruments and performance

When a body does not form a budget, then the future performance will be very difficult to interpret. With management in the budget, the performance of a person or group can be considered and there is a benchmark. From this also the future correction action becomes easier to think about.

Budget types

The budget itself is still divided into many types. This is because indeed each type of budget has its functions of each who cannot be combined with others. Some of the types of budgets are:

1. Budget sales

This first type of budget contains a marketing plan and sales of a company in a certain period of time. This is arranged of course with the initial projection analysis that was previously created. This sales budget is the key to making several other types of budgets. In this regular budget containing the type of goods, number, price, and place of sale.

2. Production budget

The two production budgets that usually contain information on the overall production unit plan in one period. The making of this production budget is only based on estimates only related to the planning of the sales budget management.

3. Budget cost of raw materials

In this type of budget there are plans for purchasing raw materials needed during the production process later. When this budget has been compiled, the company can project the cash budget and also the profit and loss will be.

4. Direct labor costs

This type of budget contains estimates of labor costs that must be paid in a budget period. In general, calculations in this labor budget are manifested in the calculation of wages per unit or hourly wages.

5. Overhead factory budget

One important budget in a manufacturing company is an overhead budget that large concept will occur. This budget is often used also in the preparation of cash and profit-loss from the company’s budget.

6. Program budget

This type of budget usually includes various operating budgets from companies relating to programs that will be implemented. An example of this program budget for example is a research and development program of the company.

7. Accountability budget

Unlike the others, this budget is centered on the responsibility of each part of a company. Usually this budget is made in the elements in the company then arranged into one to the center.

8. Cash Budget

This type of budget is related to usage or also the source of the cash owned by the company in a certain period. In this type of budget is the operation budget and capital expenditure as the basis of the balance sheet budget or final financial position.

Tips for doing budgeting

In carrying out budget management, there are several tips that can be applied so that the budget projection can be close to true. Well some of these tips will be given here:

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1. Start with target development

Before doing budgeting, the first thing that can be done is to estimate the profits that will be accepted realistically. Create a profit projection based on the latest financial statements in order to get potential targets from customers. From this sales estimate can be traced to get information that makes it easier for briefing.

2. Calculate operational costs

The second tips that need to be done are calculating in detail the operational costs that the company will run ahead. The most suitable reference source to make this is a financial statement of profit and loss. From these reports can be found variables such as salaries, shipping costs, taxes, and so on that can be used.

3. Make adjustments

The last thing you need to do in corporate budgeting is to take the time to adjust everything. This can be done by checking the financial estimates in it based on several considerations. Be sure to pay attention to the profit target and things related to the production so that the numbers in the budget can be realistic.


So that’s how a few basic things that need to be known from budget management as basic things in a company, starting from the definition of budget management, goals, types and tips.

Learning and knowing the definition of budget management is very important to be as much as possible to avoid losses that can occur in the future. It is also important to make every action and finance effective.

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