The Purpose and Importance of Budgeting for an Organization - Research Paper Example

Management accounting is a specialization of accounting that deals with the provision of information to managers for use in planning, decision making, and control functions (Bragg 2009). It involves the collection, analysis, and interpretation of accounting information for managers of an organization to help the managers to make plans, make decisions, and control to ensure that the organization's goals are being achieved. Management accounting extends to cover strategic management, performance management, and risk management which are key issues in management. The tools used in management accounting are costing techniques, budgets, and control charts among other tools (Waygandt, Kimmel, and Kieso 2009).
According to the UK Chartered Institute of Management Accountants (CIMA), a budget is a quantitative statement for a distinct phase of time, which may comprise proposed expenses, revenues, liabilities, assets, and cash flows. A budget offers a direction or focus for an organization, helps to coordinate the various activities, and helps to accomplish control (Open University 2006:16).
Budget can help us to understand how people behave in any given scenario. Financial engineers have twisted the budgets into fixed performance contracts that compel managers at all levels to perpetrate to deliver targeted financial results, even though the majority of variables strengthening those results which are well beyond their control (Hope, & Fraser 2003: xviii).
A budget is a chart stated in fiscal terms covering a future period of time (especially a financial year busted down into months. (Collier 2003:207). Budgets record estimated sales, i.e. capacity limit or market demand, and the projected revenues as contrasted by all associated costs normally for one year. The budget is closely associated with the strategy, thereby assigning resources due to strategic plans and targets (Collier 2003). As per Collier (2003) budgeting makes sure that the real financial outcomes are in line with the estimates or targets, broken down to the responsibility centers, like departments or business units.