Budget is derived from Bougett referring to a pouch. This pouch or bag made of leather was used by British Chancellor of Exchequer (Incharge of Finance) to keep the papers of financial year. These papers were used to propose budget in the parliament session.

  1. P. Bhambari remarks the term in its present sense was used for the first time in 1773 in a satire entitled, “Opening the Budget directed against financial plan of Walpole who was the then British Chancellor of Exchequer. Budget has been defined in numerous way. In simple words, it is the estimated record of revenue and expenditure. This gap of revenue (R) and Expenditure (E) when expenditure exceeds revenue then the firm is said to be in deficit state and vice-versa. Bruce has apply remarks “A budget is a financial statement, prepared in advance of the opening of a fiscal year, of the estimated revenue and expenditures of a given organisation for the coming fiscal year.” Importance of Budget lies  in a way that it serves the backbone for a financial system of an organisation. This core concept of Budget is the showcase agent of finance in an administration. Regarding this, indispensable tool, Kautilya says, “All undertakings depend upon finance. Hence foremost attention must be paid to the treasuring.” Integrated assessment of Budgetary formulation policies serve as an oxygen to the financial atmosphere.

Advantages of Budget

  1. Budget is used to determine the accountability of the legistative and government.
  2. Administrative hierarchy is restored by means of Budget.
  3. Allocating resources and their optimum distribution are also regained by means of Budget.
  4. Stabilising economy and preventing crisis is also a chief concern of Budget.
  5. Social and economic policy are intermixed and executed in a better way.
  6. Co-ordinating and managing various streams of a organisation in a single plan are the main advantage of Budget.
  7. Connecting common people to a government or organisation is the major goal of Budget.

Budget is the need for a modern state forecasting the financial administration which deals with the working and functioning of a government or organisation. Various kinds of Budget systems are presently used in the world.

  1. Line Item Budget – Also known as traditional and conventional Budget was developed in 18th and 19th century. This is based on incremental allocation of funds on specific items.
  2. Performance Budget/Functional Budget/Activity Budget – This orinigated in USA (United State of America) in 1949. The basic feature of this Budget is that it is based on the purpose of expenditure. The performance and utility of an item is correlated with the financial expenses given to that item.
  3. Programme Budget – This was introduced by USA President Johnson in the year 1965. The only change it initiated was the planning in the budgeting scheme.
  4. Zero Based Budget – This was developed by Peter Phyrr in 1969 by USA. This rational system of budgeting examines and re-examine the plan of all the scheme of budgeting.

Reviewing the policy with the inculcation of new and relevant information and eradicating outdated information is also considered a part of Budget.

Formulation of Budget

The major working in the formulation of Budget is done by the following parts of an organisation: –

  1. The Finance Sector
  2. The Administrative Block
  3. Planning
  4. Comptroller and Auditor General/the financial check in any organisation works of sectors.
  5. Pre-requisites for the preparation of Budget.
  6. Actual figures of the previous year with items.
  7. Budget estimates which are to be sanctioned this year.
  8. Estimate of current year.
  9. Estimate of next year.
  10. Actual figures of expenditure
  11. Scrutiny of consolidated funds of the firm/country.
  12. Secrecy in presentation of Budget.
  13. Budget and financial growth of the country