Budgeting is a key component in management short and long term planning
Budgeting is not only a process towards the accountant only. It will involve the whole company if necessary. Budget have two usage on the society, first is the household expenses secondly is the company that need to calculate the budget even though it??™s on rough comparison between this month and next coming month. Almost all of the entities will prepare a sub budgets.
Well, a manufacturing company will prepare the master budget which will include the sales, production and administration budget. It??™s a made up of budgeted profit and loss account, budgeted balance sheet and also the cash flow statement. Why will a company prepare a master budget It is because that once they have prepared a master budget; they can calculate everything and see whether the planning that had been made can be accommodated. Like for example. If the sales suddenly roses up that shows a very large increase in sales. That will naturally let the entity to put more on the production side so that it can breakeven off with the sales side as to achieve more sales. Then on the cash side, maybe the entity cannot support the extra sales and production because of its budgeted cash, so an financial arrangement will add on so as to let the entity have the opportunity of taking up more sales because there is no entity that doesn??™t want additional sales.
This is why budgeting is a very useful. It helps a manager to look at what they done in relation of what they can do. So it??™s like a planning in a strategic thinking. Well, it??™s more for a controlling purpose because it??™s like a benchmark of the actual and the budgeted result also as known as budgetary control. The budgetary control consists of seven items which is the, Responsibilities, Action Plan, Adherence, Monitoring, Correction, Approval and Variance. They will all be the important features in a budgetary control and also we will know the purpose and the nature of a budgetary control.
As also it will be easier to know the four main stage of budget procedure, 1st stage ??“ administering – who administer it, 2nd stage ??“ aim/target – what they target to do; 3rd stage ??“ duration ??“ the length of the budget period; and 4th stage ??“ master budget – how the master budget is made up. With any of it missing, you won??™t be able to compute a budget. As we all know. There is always a time and duration for everything. That includes budget. If there??™s no time duration for budget. How would we know that what are we trying to calculate out If it is without a time duration. There is no purpose of preparing a budget.
As what I??™ve studied in accounting, i strongly agree that budgeting is a key component in management whether is it short term or long term planning. Because it can give you a bench marking of where can the limits go and how can you exceed the limits. As there are a few components to prepare a individual budget to add in a master budget. It would be wise to do some research on what the budget would be affiliated with. Like for an entity/company. The very standard individual budget includes, sales, accounts, production, overhead, wages, admin, vehicle and etc. But some people thinks that budget is a waste of time. Well that is somehow what true. But it also depends on their company??™s subculture, value and assets.
A newly born company would be advised to start a master/individual budget every month so as to keep track of what is being spent and the bench mark for the necessary accounts. If a middle age company is on an average financial status. It would also be wise to start a individual or master budget every month or yearly so as to put a bench mark there. But for a very rich company without proper thinking, they will surely think that having a budget is a waste of time. But in the other hand, they will be losing money, if they do not have the budget accounts because they can??™t really see where is the bench mark for the money to go to every account. As now for every household or every men, they have all started to use budget for their life for saving. So it is a very good component in life as well as in management. I??™ve come to an end of my essay. Thank you for your time for reading.
Internet – http://vuhelp.net/vu-handouts-short-notes/551-mgt402-cost-management-accounting-short-notes-june-2010-a.html , http://www.apmss.com.sg/pdf/importanceof-abcin-bsc.pdf
Book ??“ Prentice Hall, Accounting for non accounting students. John R. Dyson, Eighth Edition