Mystery of budgeting;

              10 HASKINS & SELLS February
The Mystery
THE term "budget" until recently has
been used almost exclusively in con­nection
with governments and institutions.
A leading dictionary of a few years ago
defines a budget as a financial statement
prepared for submission to a legislative
body. In this connection the term has
come to signify a statement of the esti­mated
probable revenue from all sources
for an ensuing fiscal period, balanced
against the proposed expenditures for the
same period-—in short, a plan of activities
for the period, prepared in advance for the
guidance of the legislative body in fixing
taxes, fees, and assessments, and approving
the expenditures, and of the executive
branch in carrying out the program de­cided
upon.
The use of the budget for governmental
purposes is exemplified in Great Britain,
where it has been highly developed and
perfected. There it constitutes the basis
of all financial measures, and apparently
is an effective means of controlling expendi­tures.
The savings effected as a result of
the budget system inaugurated by our
own Federal government a few years ago
are a matter of common knowledge. Some
form of budget is employed by states and
municipalities generally in arranging their
financial programs.
Societies and clubs and similar organi­zations
in the social, civic, and philan­thropic
group also have taken largely to
its use. In most of these cases some esti­mate
of proposed expenditures is neces­sary
in order to fix the amount of revenue
required to be obtained, and to apportion
the burden among the individual members.
Further, it usually is desirable to plan the
expenditures in advance in order that
they may be gauged so as not to exceed
the total revenue available. These ends
are accomplished by the preparation of a
budget, which is at once the basis for au-of
Budgeting
thorizing and controlling the activities of
the organization.
Budget-making in business is of com­paratively
recent origin. However, the
principles underlying the use of the budget
are those which always have been recog­nized
informally by business men in the
conduct of their affairs.
The country store-keeper "stops to
figure" before he adds a new line to the
stock of his emporium. He considers the
probable demand on the part of his cus­tomers,
in the light of his past experience;
the additional storage space and shelf
room required; his ability to finance the
additional purchases; etc.
The city merchant makes his plans for
a certain period in advance, at least in his
own mind. He estimates the sales he will
make during the Christmas season, and
makes his purchases, arranges for his loans
from the bank, and plans his newspaper
advertising accordingly.
The officials of the large corporation
distributing its products over the whole
nation plan their activities in advance for
the coming period. Sales and production
are estimated on the basis of market analy­sis.
Advertising campaigns frequently are
laid out a considerable length of time
ahead. Estimates are made of cash re­ceipts
and disbursements, and bank loans
arranged for.
Although planning and estimating of
this nature are done as an incident to
every business enterprise, they oftentimes
do not comprehend all of the functions of
the business simultaneously, with the ob­ject
of pointing the enterprise as a whole
towards a definite objective. Further,
adequate provision is not always made for
subsequent control over the operations, in
order to assure realization of the plans and
estimates.
These are the purposes of a budget. As