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Financial Accounting Concepts - Essay Example

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In the paper “Financial Accounting Concepts” the author analyzes three types of budgets used by business these days: Self Imposed Budget, Base Year Budget, Zero Based Budget. The users of budgets use these for different purposes and monitor the budget and its progress…
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Financial Accounting Concepts
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Download file to see previous pages 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.The 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. ...Download file to see next pagesRead More
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