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Budgeting - Coursework Example

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Budgeting a) Budgeted Profit and Loss account for the year ending 31st March 2012 b) Trading cash budget for the period of six month ending 30th September 2011-12-08 C) Calculation and suggestions for overdraft limit With cash contribution of ?5000 towards operating activities, Nod is facing cash shortfall only in two months out of first 6 months…
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Download file to see previous pages... This is because from fifth month Nod will have sufficient cash not only to meet regular cash payments but also Nod will have sufficient cash to return the overdraft. The consideration is also required for capital expenditure that Nod is planning to incur in the beginning of 2nd year. The cost of car is $15000. Nod will generate $3000 on selling an old car and the rest ?12000 will be easily generated out of operation in next six months. This is because cash by the end of September 2011 after paying overdraft of say $800 will be $13150. Each month enough extra cash will be generated to meet $15000 cost easily. Accordingly Nod is advised to negotiate only for an overdraft of $800 in April for a period of four months. Word count: 221 d) Budgeting and business goals Budgeting has become an essential function of any business activity so much in the sense that it becomes easy to attain the purposes for which the business activity is planned for. In fact management plans to achieve several goals when budgeting is under taken for a business activity. Under normal circumstances budgets are used for the purposes of attaining control and evaluation, communication with different concerned parties, planning, and motivation of the factors involved in the business process. “Goal setting is a characteristic of successful business and a budget is a critical part of the process. It is a financial forecast of your operating and capital activities.”(Carol Patterson)i Operating budgets are used for planning the operations to achieve strategic objectives. Operating budget draws the attention of the management toward revenue projections and regular and routine expenditure to raise that projected revenue. The management can set up goals of earning specific revenue in order to meet the required payments for the generation of that revenue and improve the entity’s liquidity to meet unforeseen expenditure and payments. In fact operating budget force the management to plan for increasing profitability as there is direct relation between economising of the business expenditure and profitability. The main goal of planning and control is always achieved through efficient budgeting. “The budgeting system is designed to plan and control a business. However, it is common for the budget to be ‘gamed’ by its participants. For example managers may pad their budgets with excess resources. In this way, managers will have additional resources for unexpected events during the period. If the budget is being used to establish the incentive plan, then sales managers have incentives to understate the sales potential of a territory to ensure hitting their quota.”(Carl S Warren, James M. Reeve, and Jonathan Duchac)ii That way revenue or operating budget can be made objectives to be achieved by the operational staff. Incentives when linked with budgets automatically create sort of enthusiasm among the operating staff to achieve budgetary targets or goals. It is believed that businesses should always create and apply budgets in order to keep a check or track of their income and expenses. This is more applicable for small business and operations. Budgeting helps the businesses to project their profitability to be achieved over a period covered by the budget. Budgeting can spot problems and plan in advance the means to rectify those problems and issues. In a way financial ...Download file to see next pagesRead More
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