Budgeting Customer Name Tutor Name 07 April 2011 Outline Meaning and components of a financial reporting system Operating budget versus activity based budget Budget guidelines for ICBI Conclusion References Meaning and components of a financial reporting system A financial reporting system refers to an organised manner of presenting audited accounts of a company…
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(Klammer, 1999) A financial reporting system should have several components including assets, which refer to resource primarily controlled by an enterprise. Assets are ownership of a company and should be well recorded in the financial statements to be clearly reflected. Liabilities should also be clearly recorded and equity as well included in the financial statements. Equity is residual interest in assets after all liabilities have been taken care of and is also called owner’s equity. Operating budget versus activity based budget An operating budget refers to a yearly budget presented in terms of cost accounts, functional categories and budget classification code among others. It consists of estimates of total value of resources needed in operation. It is used to track operations in maintenance, wages as well as dividend payments among others. An activity based budget is one in which activities happening in a specific organisation are recorded and costs associated to them are recorded as well. (Cokins, 2006) This is followed by act of associating these costs with a company’s goals and hence from this, an activity based budget is developed. ...
Though goals are set, both budgets have little or no control at all on whether or not the goals will be achieved. Both activity based budget and operating budget engage all stakeholders hence success or failure is attributed to all. Activity based budgeting and operating budget display some differences. Activity based budget is majorly based operating activities and costs as opposed to operating budget which is based on budget classification codes and cost accounts. Operating budget keeps track of maintenance operations, salaries and wages, and interest payments. Activity based budget on the contrary mainly focuses on a company’s goals and how much has been achieved. (Proctor, 2009) Management of ICBI should adapt activity based budget. It is not hard to come up with and it is rather cheap since it avoids a bloated budget by making sure that relevant activities are recorded and costs associated to them. ICBI management should be sure of goals of the company, activities and resources required to run these activities. These activities should be recorded and tied with codes. Having recorded all activities required for performance, every cost code should then be associated with costs relevant to them and with special attention to goals of ICBI. Budget guidelines for ICBI There has to be a plan before any budget is made and this plan has some guidelines to help develop it. A budget cannot be made by one mind but requires to have a group of individuals that will work together to help develop a comprehensive budget. It should be prepared within the generally accepted principles and procedures of accounting. A budget should incorporate
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This paper will discuss budgeting with respect to the construction industry. It will describe the functions of budgeting along with the role of budgeting in motivating behaviors within organizations. We will also discuss how potential dysfunctional consequences arise from the actions that budget holders may take when they are responsible for the budget.
However, having a budget without instituting budgetary controls is useless. Budget controls are necessary to ensure that the company utilizes its finances as planned and to help detect deviations for correction purposes (Wiseman, 2010). Monitoring of a budget is something that is assiduous and must not be ignored at any particular time of the financial year.
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As such, a budget is tied to business goals and objectives, current and expected financial capability, and management strategies. In a business environment where there are uncertainties, budgeting is a means of managing risks. Issues in budgeting arise from the influence and confluence of internal and external factors that create anticipated and unanticipated risks.
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It generally provides considerable assistance in identifying the dimensions of business functions that need more attention to be upgraded and delivers a rational idea regarding the unnecessary expenses incurred within a particular organization with the motive of preserving financial effectiveness.
Moreover, in times of today budgets are not to be considered static, over a period of time they need to be reviewed and rolled over.
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In order to determine achievable budgetary targets, both the organisation and managers should sit together and determine realistic and achievable budgetary targets. For this purpose, the managers should show their consent for achieving the
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