Budget
Budget
Budget, is a qualified plan targeted to achieve a target objectives, Alan Upchurch, 1998 Management Accounting principle and practice, chapter 12 budgetary planning pg 397 a straightforward definition to give clear understanding why it is important to budget. We prepared budget to achieve a particular or set objectives , these objectives can for business or personal use , to assess how far the performances and budget are line with each other. Most business plan must be qualified if they lack qualification, plan cal lose their values supposing the business is planning to earned more profits in next year , without know how much profits and its difficult to assess the effort to which the company might be planning to pursuit.
PART A
Budgeting
Budgeting involves planning for the various revenue producing and cot generating activates of an organization, however Budgeting are the essentially financial planning, or planning for financial performance. Below are the main purposes of preparing budgets, Planning, Allocation, Co-ordination, Control, Communication, Motivation and Performance Evaluation. Budget involves planning for revenue and cost generation within the organisation.
Planning
budgetary planning is the process of preparing detailed , short or long term plan for the overall department with the organization and their activities , its important that the short term business objectives in the budget are related to the long term business plan. The budget plan may be drawn by preparing the overall budget for the organization, which are broken down into more detailed in different section according to the department within the organization; this can be drawn using the Top up approach or the bottom up approach. (Colin Drury 2008 7th edition, Management cost Accounting pg 351)
Control
This act as virtual of comparing the variation of actual performances to the budgeted planed performance to enable correctives action to be taken, These variations are also known as variances, they are analysed into more detail and reported to managers for action. Taking action on variances is the most important part of the control. Therefore, the information must be relevant, comprehensible for the managers to make future prediction and makes changes for futures plans, A budget assists managers in their management functions and controls the activities for which they are responsible. By comparing the actual results with budgeted amounts for different categories of expenses, managers can ascertain which costs do not conform to the original plan and thus require their attention. This process enables management to operate a system of management by exception, which means that a managers attention and effort can be concentrated on significant deviations from the expected results. By investigating the reason for the deviations, managers may be able to identify inefficiencies such as the purchase of inferior quality materials. When the reasons for the inefficiencies have been found, appropriate control action is taken to remedy the situation. Roger W Mills and john Robertson 4th edition march 2003 Fundamentals of managerial accounting and finance
This means that the budget process should not stop when the budgets have been agreed upon. The actual results should be compared with the budgeted results at regular intervals. This will allow management to identify the items which are not proceeding according to plan and to investigate the reasons for the differences, If it is possible to rectify these differences and action will be taken to avoid similar inefficiencies occurring again. Nevertheless, it may be the case that the budget was unrealistic to begin with, or the actual conditions during the budget year were different from those anticipated. In this case, if budgets are to be a useful basis for exercising control in the future,