Budgets
What is the purpose of budgets in business finance?
The purpose of budgets in business finance is to plan and control financial activities. Budgets help in allocating resources, setting targets, monitoring performance, coordinating activities, making informed financial decisions, and facilitating communication within the organization.
How are budgets used to measure business performance?
Budgets are used to measure business performance by comparing actual financial results with the budgeted or planned figures. Variance analysis is conducted to assess the differences between the actual performance and the budgeted amounts, allowing businesses to identify areas of overperformance or underperformance, investigate the causes, make necessary adjustments, and take corrective actions to ensure financial objectives are met. Budgets serve as benchmarks and performance targets against which actual performance is evaluated.