Budget As Planning And Control Tools Essay
The success of a company depends on several things, good strategy, business plan, and budget, among others. Budget is an important part in order for a business to function and succeed. According to Business Dictionary, budget is “an estimate of costs, revenues, and resources over a specified period” (Business Dictionary, 2016). A budget is a plan for the financial conditions of a company’s next period.
There are different types of budgets in managerial accounting. Some of those budgets are master budget, cash budget, sales budget, production budget, etc. The purpose of these budgets is planning and control. Preparing a budget helps business to plan goals and to achieve them and it also helps control expenses. Some of the benefits of budgeting are that it “communicates manager’s plans, helps allocating resources, defines goals, and helps coordinate activities” (Garrison, Noreen, & Brewer, 2015). Creating a budget could also help determine if an idea is doable, and measures the performance of company’s goals and if they have been met.
As mentioned before a budget has two important purposes: planning and control. Planning is what helps business develop goals and determine if the company has the necessary capital to achieve those goals. There are several steps companies must follow when creating a budget for the next period:
Getting the right people involved
The first step when creating a budget is to get the right people…