Budgeting intended for Managers Article

Accounting for Managers

a few. BUDGETING

When you have completed this section,  you should be able to:

•Explain the benefits of budgeting

•Describe a budgeting process

•Explain the difference fixed and flexible budget

•Prepare a simple flexible budget from a fixed budget

•Compute variances from budget and actual data

•Prepare a cash budget

•Explain the setbacks of traditional budgeting

•Explain the problems of budgetary slack

•Explain the impact of globalization to the budgeting process.

These materials are copyright of WEC.  No part of this document is to be reproduced.  Copyright and permission clearance to be refined

Accounting for Managers

several. 1INTRODUCTION

Budgeting is a common accounting tool that business use for planning and controlling. �. A budget is a plan of future actions.  It sets out in management terms and management responsibilities (what management has to achieve) in relations of the requirements of the company's overall objectives. Subsequently,  becomes a document for controlling operations and evaluating performance.  A budget may be prepared for any period of time but the budget period should be long enough to provide an attainable goal under normal business conditions.  The time period selected should minimize the impact of seasonal and cyclical fluctuations.

Accounting is usually used to express budgetary goals in financial terms.  It is used as below:

1 ) uses historical data on revenues,  costs and expenses to predict what will happen in the future

installment payments on your periodic reports prepared comparing actual to budget to determine any diversities

These materials are copyright of WEC.  No part of this document is to be reproduced.  Copyright and permission clearance to be prepared

Accounting for Managers

several. 2IMPORTANCE OF BUDGETING

Budgeting is an important process in a management control system of a business.  A budgeting process that works well could produce benefits as follows:

1 .  To aid the planning of actual operations:

©By forcing managers to consider how conditions might change and

what steps should be taken now.

© By encouraging managers to consider problems before they arise.

2 .  To co-ordinate the activities of the organization:

® By compelling managers to examine relationships between their own operation and those of other departments.

3.  To communicate plans to various responsibility centre managers:

©Everyone in the organization should have a clear understanding of the

part they are expected to play in achieving the annual budget.

©By ensuring appropriate individuals are made accountable for implementing the budget.

4. To motivate managers to strive to achieve the budget goals:

® by focusing on participation

® By providing a challenge/target.

These materials are copyright of WEC.  No part of this document is to be reproduced.  Copyright and permission clearance to be highly processed

Accounting for Managers

5.  To control activities:

©By comparison of actual with budget (attention,

directing/management by exception).

six.  To evaluate the performance of managers:

© By providing a means of informing managers of how well they are performing in meeting targets they have previously set.

Activity 3. 1

Explain any three importance of budget with examples in an organization

These materials are copyright of WEC.  No part of this document is to be reproduced.  Copyright and permission clearance to be prepared

Accounting for Managers

a few. 3BUDGET SYSTEM

A well managed business usually has a well planned budget system or process.  A budget committee is usually responsible in setting up and maintaining a well established budget system.  The Budget Committee is a standing conmiittee responsible for overall policy matters relating to the

budget and coordinating the preparation of the budget. A typical flow of budget system could be as follows:...

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