Budgets are the output of the planning information.

They become the standards or targets for control function of management. Accountants prepare the final versi ons of budgets and collect accounting information to present periodical reports on budgeted versus actual performance. Budgeting is the most widely used accounting tool for planning and controlling o rganizations. A budget is a formal quantitative expression of management's plan of action for a future time period and it acts as the coordination and implementation device. The budget can include both financial and nonfinancial aspects of operating and financial plans. The master budget of a company is a comprehensive expression of management's ope rating and financial plans for a future time period (usually a year) that is sum marized in a set of budgeted financial statements. Some organizations use the te rm "pro forma statements" for budgeted statements. Some firms refer to budgeting as targeting. Many companies prepare budgeted income statement, balance sheet a nd statement of cash flow as the summarized budget statements. Advantages of Budgets The advocates of budgeting state that the process of preparing budget forces exe cutives to become better managers. Budgeting schedule of a company puts planning where it belongs - in the forefront of every manager's mind. It also forces him to review his performance in the last period and identify good practices that e nhanced performance and issues that contributed negatively to performance. The formal budgeting system has the following major benefits. 1. Budgeting due to its formal time table or schedule compels managers to think ahead apart from taking care of their current activities. 2. Budgeting, due to its approval and authorization by the superiors, provides d efinite expectations that are the best framework for judging subsequent performa nce. 3. Budgeting helps in coordinating the various departments of the organization. The budget harmonizes the goals (objectives) of the individual departments into the organization wide goals (objectives). Steps in Developing an Operating Budget 1. 2. 3. et 4. 5. 6. 7. 8. 9. Prepare the revenues budget Prepare the production budget Prepare the direct materials usage budget and direct materials purchases budg Prepare Prepare Prepare Prepare Prepare Prepare the the the the the the direct manufacturing labor budget manufacturing overhead budget ending inventories budget cost of good sold budget nonmanufacturing costs budget. budgeted income statement