The paper "Budgeting and Financial Planning" is an outstanding example of a finance and accounting assignment. A budget can be defined as an expressive expression of a plan for a company for a specified period of time. It is a document that is prepared to show the expected levels of operations of a company over a certain period of time, for example, a year. A budget can hence be stated to be a document which shows all the plans at all the strategic and operational levels of a company.
Some of the contents of a budget are planned sales volumes, resource quantities, assets and liability levels and the expected costs and expenses of a business venture. It also expresses all the expected cash flows to be made by the business in its operations. By being a list of estimates of the expected levels of operations, a budget is a reference which the business uses when undertaking its operations and its day to day activities. As such, a budget expresses all the strategic plans of a business organization and the activities undertaken and all business events in measurable terms.
The budget also enables the actual financial operation of the business to be easily and well measures against the forecast that has been earlier provided for. The budget is also very crucial to the operations of firms in that it helps establish the cost constraint for a particular project, program or operation of the business. The main function of the budget, however, is to provide a forecast of the revenues and the expenditures. This means that it shows an estimate of how the business is likely to perform financially if certain strategies, events and plans are carried out.
Through this, it enables businesses to know their expected rates of performance. What are the key operational budgets of an organization and what do they seek to achieve? There are different types of budgets. This is based on the contents they have. Different budgets have different functions they serve to the business. The operational budgets include among others; The sales budget- this represents an estimate of the expected future sales of the company. It is usually broken down into small units.
It is also broken down into currency units. The main objective of the sales budget is to create the sales goals of a company. Through the creation of the sales goal and targets, the business is well able to calculate the expected returns to be received from the sales it makes. The production budget- this represents and shows the estimated number of units that must be manufactured by the company in order to meet the sales goals. It is also crucial in that it also estimates the various costs involved with manufacturing the units.
These are referred to as the production costs. They are inclusive of the labor costs and material acquisition costs. These budgets are common in only those companies that are product-oriented. They are hence absent in those companies that do not deal with the production of goods. Cash/ cash flow budget- this is a budget which contains a prediction of the future cash receipts and expenditures for a company over a particular period of time. In most cases, it covers a period in the short term future.
Through this, it is useful in businesses due to the fact that it helps the business to determine when income will be sufficient to cover the expenses and when the company will need to seek financial support from the outside environment. This is through such things as loans and other forms of borrowing and financing. Marketing budget- this is an estimate of the funds needed for a promotion, advertising and public relations in order to market the product or service. It takes into consideration the current market advertising charges and after a certain margin is placed or put, the estimates are arrived at.
It is crucial due to the fact that it reduces wastages that might arise when it comes to advertising the products of a company. As such, it is useful in the control of the expenditure to be used in the case of such things as product promotion. Project budget- this is a prediction of the costs associated with a particular company project. These costs include labor, materials and other such related expenses that might arise. It is usually broken down into specific tasks, with respective task budgets assigned to each of the tasks.
An estimate of the costs to be incurred is what is used to establish a project budget.
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