Relevance of a Budget to an Organization - Literature review Example

The paper "Relevance of a Budget to an Organization" is a good example of a literature review on finance and accounting. According to Reimers (2007), financial planning in an organization is underpinned with effective budgeting tools and in this regard, he defined a budget as an organization’s quantitative expression of financial plans for a future period that could range between months or years. This essay is aimed at examining the relevance of preparing and utilizing a budget in an organization. 

The preparation of a budget is requisite in the determination of the capital structure of an organization. Through the application of budgetary tools, management is able to realign effectively financing of assets through the perfect matrix of equity, debt, and securities (Garrison et al., 2015). As a result of capital budgeting, the management will be better placed to formulate strategic goals, accurately estimate and forecast cash flows, control and monitor the organization’s expenditures. The budget is also instrumental in the formulation and amendment of financial policies. According to Reimers (2007), the budget constitutes an integral part of the decision-making framework within an organization. As a decision-making tool, the budget explicitly depicts the financial plans of an organization thereby providing a framework for the development of appropriate policies and strategies on future undertakings.
Garrison et al., (2015) noted that the importance of a budget is further underlined with its role in organization performance monitoring. Organizations should prepare a budget to facilitate the comparability of the actual performance of a firm against the previously forecasted performance. Vis a vis, the budget provides the management with the baseline for the evaluation of the performance of the organization within a specific period. Similarly, based on the organization’s performance, the management is able to evaluate the emergent market trends and strategize on the future performance of the firm (Garrison et al., 2015). In addition, organizations should prepare the budget in order to reduce uncertainties associated with market trends through effective planning for the limited resources, balancing of inflow and outflow of funds and strategic investment of the organization’s income.  Read More