Answer
Companies prepare a budget in order to show a formal and specific plan to achieve a goal. Budgets not only describe a plan, but they also show a plan's feasibility in quantitative terms.
Work Step by Step
A budget is a detailed plan for the future that is usually expressed in formal quantitative terms.
Budgets are part of planning activity of the business for future. They are used to estimate the future sales, costs, profits or losses or savings for contingencies.
Budgets help the companies to plan their future course of action to reach the goals and objectives. The companies can adjust the sales and costs to meet the budgetary requirements in the future period.
The companies can set aside amount to meet future contingencies. This will help the management to avoid the situation of lack of funds in future.
Budgeting is not an easy task. Sometimes, there may be conflicts between different factors. Budgeting has to be done serving the needs of all conflicting interests.
