Financial Accounting Concepts - Essay Example

Financial Accounting ConceptsTypes of Budgets & their CreationBasically, there are ‘3’ types of budgets used by business these days:Self Imposed Budget: Also known as a participative budget; it is a budget that is made with full participation and input from managers at all levels, thus naming it as participative. Here input and participation of managers is an essentiality to proceed with success. The advantages is that the more concerned managers are involved, the better the chances are of the budget being very much realistic in approach.

These budgets are generally made at all levels but individually, rather than collectively. For instance, a salesman keeps a self imposed budget of, e.g. 5 units to be sold in a day.Base Year Budget: It is the type of budgeting in which the previous year or any year for that matter is considered a standard, against which the expected (/wanted) performance is added to have a forecasted budget for the coming term. For example, considering 2006 as a base year, with all revenues and expenses expected to rise by 10%; the said percentage is multiplied across the board to attain the coming year budget or forecast.

Zero Based Budget: It is a derived form of the base year budget in which no base year is considered and the concerned manager is expected to justify each and every expense that he/she has stated in the forecast/budget. These are difficult to make, require extensive efforts and data gathering, since there is no base, the budget has to be prepared fro scratch.Users & Monitors of BudgetsThe users of the budget are as follows:AccountantsThe heads of the departmentTop level managementOwnersCEOThe users of budgets use these for different purposes; e.g. accountants use the information to check with variance for future better forecast, the heads check the contribution and performance of individual employees, the management checks the department working and profitability, while the owners view the over all big picture to visualize individual contributions and achievements.

These users also monitor the budget and its progress; however, the major monitoring is done by the concern department manager who is responsible for achieving the forecasted budget values. For department managers, it is essential to do so because their departments are essentially their responsibility and it is they who are responsible and answerable to the top management for the same. Alongside, the respective department managers also check for period and regular feedback on the term-based budget evaluation to see if things are going wrong then how they can be corrected and if they are on the right path, how further betterment can be achieved.

Budget monitoring also leads to analyses of where resources are lacking and where they are in surplus so that the surplus can be switched to the shortage area, in short, appropriate utilization and allocation of resources can be achieved in an optimal manner.Bibliography1. J. Weygandt, E. Kieso & D. Kimmel. (2002). Accounting Principles. 6th edition. New York: John Wiley & Sons, Inc.