Financial & Budgetary Management. Planning Business Performance - Essay Example

A budget is a report statement of management’s plans for a specific time period expressed in financial terms (Weygant & Kieso & Kimmel, 2002, p.982). The purpose of this report is to describe the important of a budgeting function and the way it can easily implanted into a business information system. A budget is created to meet the desired timeframe a manager desires. The period of time a budget is created for is a one year accounting period, which is typically aligned with the company fiscal year or the natural year.

A budget is an extremely valuable tool that provides decision makers with many advantages. Some of these advantages include; Budgeting is based on the amount of expected economic resources a firm estimates it will generate. Sales are the main source of economic incentive for companies. A budget is created in order to determine the resources need to create the target sales total. The value of a lot of business variables are determined based on expected revenue outcomes. The amount of material purchases, labor requirements, machinery upgrades, information system maintenance among other factors are determined based on an annual budget of a corporation.

Budgets are associated with the responsibility centers such as cost centers, profit centers and investment centers. The return on investment of an investment center is studied based on the investment budget which allows the owner to create different profit forecast by manipulating the data from the budget of the investment project. The evaluation that takes place utilizing budgets is data that can be trust if it meets the basic performance standards: Accountability provides budgets with the credibility among professionals since it ensures the system is protected from material error.

Accountability is one of many qualities that ensure the quality of the information in the budgeting system. Timeliness, authority, objectivity and accuracy are other variable that ensure quality information is