Future Events and Trends of an Activity in a Company - Essay Example

Budgeting is a preparation of a detailed financial plan that shows how the revenues and expenditures of the organization will be financed. A budget lists the expenses, and revenues, and establishes plans for borrowing, saving, and investments of the company resources (Burton & Thakur, 1998). Forecasting is the practice of predicting the sources of expected revenues while budgeting details the use of the expected revenues (Dlabay & Burrow, 2007). Forecasting data is mainly used in preparing budgets. Budgeting allows the organization to control the cash flow of the organization (Shim, Siegel & Shim, 2012).

There are certain differences between operating budgets and cash budgets. The operating budget is mainly prepared for each income statement component such as the production budget, and sales budget (Crosson & Needles, 2011). Operating budgets mainly provide a blueprint for how the business will conduct its operations in a certain period like the expected production level, and the sales volumes (Dlabay & Burrow, 2007). On the other hand, cash budgets are prepared after the preparation of operating budgets. The cash budget contains the receipts, disbursements, and the cash deficit or surplus (Burton & Thakur, 1998).

Zero-based budgeting approach requires each cost element to be justified. The budget allowance is usually zero. Each budget is prepared from zero based instead of the previous year’s budget as the base (Crosson & Needles, 2011). Each manager must justify the need for spending through detailed proposals of costs, purpose, alternative courses of action, and measures of budget performance. Zero-based budgeting will improve efficiency by detecting inflated budgets and recognizing obsolete operations (Crosson & Needles, 2011). The budgeting approach leads to greater incentives for responsible decision-making and increases communication and coordination in the organization (Burton & Thakur, 1998).

Conclusion
Forecasting is predicting the future events, revenue,s and expenditures of the organization while budgeting entails making a financial plan on the utilization of the revenues. Operational budgets mainly provide information on the expected operational volumes of the organization while cash budget details the source and utilization of cash in the organization. Zero-based budgeting justifies the need for the costs thus improving efficiency in an organization. Read More