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Understanding Management accounting and Financial Management - Dissertation Example

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Every organization needs to acquire funds such as cash for directing projects and carrying out daily operating activities (Blocher, 2006). Many companies find it difficult to prepare budgets but its importance cannot be overlooked (Pizzey, 2001). …
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Understanding Management accounting and Financial Management
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In the modern business environment, budgeting provides a feasibility analysis of the present and future needs of the capital needs and resources. The usefulness of budgeting as a management control tool is very significant. Preparing budgets is the financial basis for modern business environments as it enables organizations to establish milestones, determine the internal and external potential of the business to the managers and the investors respectively.
Many companies find it difficult to prepare budgets but its importance cannot be overlooked.
Budgeting can provide benchmarks for the organizations and managers as how to conduct and control the operating activities so as to meet the required target provided by the budgets. Later on, the budgets can be compared with the actual results which can provide an analysis where improvements need to be made and which area needs more controlling. Since organizations can prepare many types of budgets such as sales budget, production cost budget, expense budget and so on, cash budget remains the backbone of the other budgets.
The process of budgeting can facilitate the integration of goals of employees, teams and organization as a whole. If the budget is thought about as a control system, then in context with the modern business environment, it is necessary that all levels of organization participate in the process of budgeting so that when actual results are acquired, it can be compared against the budgets and measures of improvement can be suggested. (Davidson, 2009). In case of South-guys Partnership Ltd there are many ways in which the cash budget can facilitate management of control. Since the cash budget enables to plan to the usage of cash efficiently, it shows where the company has cash surplus in a given a time period and where it has deficiency thus enabling the management to make arrangements before the deficiency actually occurs or in other case, make plans for investing the surplus cash in other profitable ventures (Shim and Siegel, 2008). This is main advantage of cash budget that South-guys Partnership Ltd can use to create a better and efficient cash flow for their organization. Thus budgeting has the capability to provide forecast for the future needs of cash or funds before the organization can actually face the crisis. It allows for planning and raising of funds at reasonable costs and terms from many different sources (Rickards, 2006). In addition to this, modern business environment requires businesses to maintain liquidity the basis of which is cash requiring companies to maintain a minimum margin of cash according to ...Download file to see next pagesRead More
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