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6 stages in preparation of budget.

Budget is a plan expressed in terms of money and resources. It is prepared and approved  prior to the period to which it relates and may show income to be earned , expenditure to be incurred and the capital to be employed

The following are stages in preparation of budgets:

  • Establishing the main objectives. a budget is not an end in itself, rather a means to an end. The ultimate aim is the achievement of the organization’s objectives. the statement of the organization’s goals is the sign post that identifies the general direction which should be taken in the budgeting exercise. It is therefore an important initial step in the preparation of budgets. objectives are also stated for each budget center, and these objectives must agree with the organization’s objectives
  • Identifying constraints. budgeting is realistic exercise. It should take into account the environment and the resource that are expected to be available. All factors that limit the organization ability to attain its objectives should be identified and incorporated in the planning exercise. The organization could example, be facing raw materials problems, or shortage of funds, or there may be a dearth of skilled manpower, and so on. These factors would have to be taken into account
  • Obtaining plans and estimates from budget centers. Plans and estimates are submitted by budget center managers
  • Examining, discussing and coordinating plans and estimates. The plans received from different budget centers are examined, having regard to the objectives of each budget center.
  • Aggregating plans and estimates to give draft budget. The budget center plan are collected into one plan, which is also examined against the organization’s overall objectives.
  • Acceptance and approval of objectives. The plans are approved and become the organization’s budget

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