Budgeting Is a Key Component in Management

Budgeting is a key component in management short and long term planning
Budgeting is not only a process towards the accountant only. It will involve the whole company if necessary. Budget have two usage on the society, first is the household expenses secondly is the company that need to calculate the budget even though it’s on rough comparison between this month and next coming month. Almost all of the entities will prepare a sub budgets.
Well, a manufacturing company will prepare the master budget which will include the sales, production and administration budget. It’s a made up of budgeted profit and loss account, budgeted balance sheet and also the cash flow statement. Why will a company prepare a master budget? It is because that once they have prepared a master budget; they can calculate everything and see whether the planning that had been made can be accommodated. Like for example. If the sales suddenly roses up that shows a very large increase in sales. That will naturally let the entity to put more on the production side so that it can breakeven off with the sales side as to achieve more sales. Then on the cash side, maybe the entity cannot support the extra sales and production because of its budgeted cash, so an financial arrangement will add on so as to let the entity have the opportunity of taking up more sales because there is no entity that doesn’t want additional sales.
This is why budgeting is a very useful. It helps a manager to look at what they done in relation of what they can do. So it’s like a planning in a strategic thinking. Well, it’s more for a controlling purpose because it’s like a benchmark of the actual and the budgeted result also as known as budgetary control. The budgetary control consists of seven items which is the, Responsibilities, Action Plan, Adherence, Monitoring, Correction, Approval and Variance. They will all be the important features in a budgetary control and also we will know the purpose and the nature of a...