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Budgeting - Essay Example

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Summary
Budgeting is basically a plan that shows the expenses which are likely to be incurred by a business and the means by which they can be financed. A budget is usually made for one year, unless the management specifically requires a budget of a shorter period…
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Budgeting
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Budgeting

Download file to see previous pages... Budgets are not always made for a fixed period, some budgets are created by adding a few more months to ensure that the total tenure for which the budget has been made spans over a total of twelve months. Another type of such estimation is known as a forecast. A forecast is a budget that modifies in the middle of the year to make a new/mini budget which is for a period of 3 months or 6 months. By making a budget, a company gets the following advantages: It ensures that the resources are being used in conformity with the goals of the company. It ensures that there are proper controls over the use of resources. It can help in ensuring that the departments of the company are engaged constructively with each other. It acts as a way of evaluating the performance of managers of the company - by comparing their achievements with the budgeted performance (Collier, 2010). Budget Cycle: In a budget cycle, a budget is first planned and then performances are controlled on its basis. In this process, a plan is first developed to manage the finances of the company. This plan is then made the benchmark against which the performance is compared. If the performance is below the budgets estimations, reasons for deviation are found out and measures are taken to ensure that the work performed conforms to the standard set in the budget. Working with the Budget throughout the Budget Cycle As the person in charge of the department of finance, it is obvious that you are going to be a part of every step that is taken when the budgets are prepared. These steps include the following: 1. Planning and Development Planning and development is the first step of the budget cycle. When budgets are made, people involved in the preparation consider the present financial situation to make future estimations; they do not disregard the previous historic data relating to the product or departments. To ensure that the budgets are as accurate as possible, they encourage the people who are involved in the daily financial dealings of the products to give their inputs. This is because these people are the specialists of the products they work with every day; thus, they will be able to give a better idea of the estimated revenue, expenses, etc. 2. Implementation After a budget has been prepared and loaded into the finance system, it is now the time to implement it. However, before the implementation stage is started, it is imperative to ensure that the correct budget has been loaded. In case of any kind of an ambiguity, it is always advisable to get in touch with a professional accountant. 3. Monitoring a. Revenue and Expense Statement Detail In order to ensure that each fund has its FOPPS, the report that shows the entire details of the expenses incurred and revenue earned is required to be reconciled on a monthly basis. i. All the amounts for expenses incurred during the year, transfers made and revenue earned must be compared with the original document on the basis of which the entry was made and the transaction went through. ii. Once the mistakes are identified, they must be removed as soon as possible. b. Revenue and Expense Statement Summary To make sure that the company has a full control over the operations going on, the statement that shows the summary of the revenue earned and expenses incurred is required to be seen monthly. i. The actual amounts of expenses incurred ...Download file to see next pagesRead More
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