Budgeting Basics - Budgeting Basics One of management's...

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Budgeting Basics One of management's major responsibilities is planning . As explained in Chapter 14 , planning is the process of establishing enterprise-wide objectives. A successful organization makes both long-term and short-term plans . These plans set forth the objectives of the company and the proposed way of accomplishing them. A budget is a formal written statement of management's plans for a specified future time period, expressed in financial terms. It normally represents the primary method of communicating agreed-upon objectives throughout the organization. Once adopted, a budget becomes an important basis for evaluating performance. It promotes efficiency and serves as a deterrent to waste and inefficiency. We consider the role of budgeting as a control device in Chapter 21 . Budgeting and Accounting Accounting information makes major contributions to the budgeting process. From the accounting records, companies can obtain historical data on revenues, costs, and expenses . These data are helpful in formulating future budget goals. Normally, accountants have the responsibility for presenting management's budgeting goals in financial terms. In this role, they translate management's plans and communicate the budget to employees throughout the company. They prepare periodic budget reports that provide the basis for measuring performance and comparing actual results with planned objectives. The budget itself, and the administration of the budget, however, are entirely management responsibilities . The Benefits of Budgeting The primary benefits of budgeting are: 1. It requires all levels of management to plan ahead basis. 2. It provides definite objectives for evaluating performance at 3. It creates an early warning system for potential problems so changes before things get out of hand. 4. It facilitates the coordination of activities within the busines the goals of each segment with overall company objectives. T integrate production and sales promotion with expected sales. 5. It results in greater management awareness of the entity's ov impact on operations of external factors, such as economic tre 6. It motivates personnel throughout the organization to meet p A budget is an aid to management; it is not a substitute for management . A budget cannot operate or enforce itself. Companies can realize the benefits of budgeting only when managers carefully administer budgets. Essentials of Effective Budgeting
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Effective budgeting depends on a sound organizational structure . In such a structure, authority and responsibility for all phases of operations are clearly defined. Budgets based on research and analysis should result in realistic goals that will contribute to the growth and profitability of a company. And, the effectiveness of a budget program is directly related to its acceptance by all levels of management .
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