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The Purposes of Budgeting System - Essay Example

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Budget is prepared by the organizations for done a proper planning to use the available resources optimally and for increasing the shareholders’ wealth as much as possible. Allocating the budget properly will increase the probability of generating profit (CIVICUS World…
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The Purposes of Budgeting System
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Download file to see previous pages nagement accountants of an organization use these statements along with the financial statements like cash flow, fund flow statements and prepare budget for the next financial period. This paper is an attempt to identify the purposes of budgeting system and the value of it.
The purpose of budgeting system is to plan properly about how the operations of the organization will go on, plan properly about the borrowings, resources allocation and savings of the company (Khan and Jain, 2007, p.8.2). By doing a proper allocation the management accountants can make it sure that the resources are utilized efficiently.
By analyzing the financial statements prepared by the financial accountants the management accountants of an organization make a proper plan for better performance in the next financial period. For ensuring a better performance by the organization in the next financial period the management accountants make a suitable plan so that the resources are engaged in the proper area of the organization. Proper use of the resources in proper area assures best performance of those resources which in turn would help the organization to perform better.
While analyzing the cost sheet, the management may found that there are many idle resources in the manufacturing activity. May be there is some time gap between the two activities during the operation. The management has to take steps so that there would be no idle time in the operation in the next financial period. This would assure operating efficiency and the operating cost would be down and the resources would be used optimally. As a result the net profit of the company will increase.
By analyzing the cost sheet the management would come to know about the performance of the cost centres. The cost centre means where the cost is splitting and the measure is done centre wise. Though it is a tough job to make the division of cost allocation, but for managing the cost it is apportioned over the centres (Lucey and Lucey, ...Download file to see next pagesRead More
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