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Management control and budgeting
Financial management as a tool for planning
Financial planning priciples and processes
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Recommended: Management control and budgeting
To effectively and efficiently manage one’s economic resources for the long-term, an accurate accounting of the current situation must be realized, and a subsequent plan put in place to achieve the highest and best results possible for the short-term contributing period. To make better financial decisions, there are an array of related tools available. These include budgets and the budget process, variances, financial statements, plus “assessments of risk and the time value of money, macroeconomic indicators, and microeconomic or personal factors” (Siegel & Yacht, 2009, p. 131).
Budgets are money management plans which forecast expected performances of various budgetary items – including income, expense, cash and capital. By precisely
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These gaps can be caused by inaccurate budget process or by changes in microeconomic or macroeconomic factors. As variances are identified within the specific line item during periodic updates, these deviations can be analyzed and attributed to errors in the budgetary process or economic changes (micro or macro) influencing the results. Subsequently, corrective action can be taken to realign the forecast with the actual numbers, or some modification to the performance expectations or overall goals can be required (Siegel & Yacht, …show more content…
For personal finances, the operating budget incorporates income, expenses (soft good consumables), debt payments, as well as savings or investments. Under capital budget, items that are significant purchases and are categorized as capital expenditures, are typically longer-lasting, durable goods. By differentiating these two budgets, one can more precisely monitor and manage monthly finances and related options, which can be substantially varied and distinct from using a simple average, uniformly spreading incomes and expenses across the financial period (Siegel & Yacht,
Our Preamble lists five main goals that are required to help create a strong and stable society within our country. However, money is required in order to achieve these goals. We get this money from the Federal Budget which is the yearly amount we receive in order to better our country. The question here is, are we slicing the pie correctly in relation to the federal budget? In each of three budget clusters, the U.S Government should make adjustments in the way it is distributing money by making changes involving the Big Five, the Middle Five, and the Little Guys.
Operating budgets are budgets that deal mainly with the day-to-day operations of a facility. This may include wages, utilities, rent, and items purchased that have the intent of lasting less than a year (Johnston, n.d). This type budget provides the needed information regarding the cash on hand needed to operate the facility during a fiscal year. Capital expenditure budgets deal with more long term items such as equipment or property. As stated by Johnston (n.d.), it is necessary to have a capital budget for continued growth of the business. You complete this task by purchasing assets that produce an income. Capital expenditure budget have the potential to cover a five- to ten-year period (Baker & Baker, 2014, p.174). Items included in the capital expenditure budget may also include loan interest and bondholder's interest. The operating budget and the capital expenditure budget interact with one another. To demonstrate an example: a healthcare facility purchases a chemistry analyzer for its clinical laboratory. The chemistry analyzer is placed in the capital expenditure budget, but the maintenance for the analyzer is placed in the operational budget. The capital expenditure expense is the chemistry analyzer, but the materials used to maintain the chemistry analyzer are operational expense.
Budgeting is a familiar term to most American families. Dictionary.com defines budgeting as an estimate, often itemized, of expected income and expense for a given period in the future. In order to avoid debt, bankruptcy, or overspending it is common to create a spreadsheet of some sort tracking your spending and income. On a grander scheme, the Unites States has to budget as well.
Capital Budgeting encourages managers to accurately manage and control their capital expenditure. By providing powerful reporting and analysis, managers can take control of their budgets.
While George Wilson’s misguided belief contributes to Jay Gatsby’s demise in “The Great Gatsby,” a deeper examination reveals that Daisy Buchanan’s reckless actions behind the wheel and in her life are the catalyst for Gatsby’s death, which is shown through their individual choices, highlighting the effect of moral behaviors in Fitzgerald’s narrative. George Wilson’s incorrect belief that Jay Gatsby was responsible for the death of his wife, Myrtle Wilson, served as a catalyst for Gatsby’s demise. George's misunderstanding stems from the chaotic events surrounding Myrtle's tragic death, where she was struck by Gatsby’s car, driven by Daisy Buchanan. Blinded by grief and fueled by a desire for vengeance, George fixates on Gatsby as a culprit,
The purpose of a capital budget is for nonrecurring items. Capital expenditures involve long- term plans and goals. To project capital expenditures some course of action should take place which includes: new information, microeconomic factors, macroeconomic factors, and the time value of money.
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
Thomas Jefferson once stated, "I place economy among the first and most important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt" (Bussing-Burks, 7). A lot has changed since Jefferson was President two hundred years ago, but the need to be financially solvent is something that will always be necessary for the United States to maintain its leadership position in the world. The United States of America currently owes $16.7 trillion in debt primarily as a result of the government’s spending practices during the last ten years. Two wars, several fiscal collapses, the bursting of the bubble in the housing market, looming medical care costs from an expanded healthcare access law, and a recession may be the scapegoats, but the real issue is fiscal irresponsibility by the parties in power (Hiber, 76). One idea that has been discussed not only in Congress, but also on prime time news networks is the passage of a Balanced Budget Amendment, which would require that Congress balances the country’s budget every fiscal year (American Government, 1). A Balanced Budget Amendment could provide an exception for times of war, national emergency, or recession, or allow the legislature to suspend the rule by a supermajority vote (Lee, 2). A balanced budget is critical because budget deficits can only be funded by additional increases in the level of the national debt, which can place an undue burden on future generations to repay such debt, create annual interest costs that consume an increasing portion of tax revenues and crowd out spending on current programs, and result in potential reliance on other countries in order to make financial ends meet.
The federal budget is known as the notorious economic tank from which money is distributed to various programs. The money used every fiscal year, which begins October 1st and ends September 30th the next year, belongs to the people. The government raises this money through taxes and they spend it on national defense, Medicare, and social security. The federal budget is an exercise in making choices, and those options will certainly affect individuals living in the U.S. These choices cause debt to pile up on the government, who is struggling to make it disappear. The deficit and debt of a government gauges how well it is being run and how well it has been run in the past. According to The Economist the national debt is the total outstanding borrowing of a country’s government; it is an accumulation of deficits that has yet to be paid off (Economist, A-Z). The current U.S. federal deficit, as of the 2013 fiscal year, is a monumental $680 billion dollars, adding to an even higher debt. Any attempt to diminish this debt has the consumer footing the bill, but there has to be a different way. There have been requests to increase taxes, to raise revenues for transportation infrastructure, to restrategize the military force or to make defense more affordable (“15 Ways to Rethink the Federal Budget”, Brookings).
Budgets has been widely used by a lot of organizations since it was first introduced, because it can helps managers to properly plan and control the business’s resources. Successful control mechanisms as Schick believes are the essential to budgetary development (Gray, Jenkins, and Segsworth, 2002, p.11). However, recently the use of budgets to control organizations has been the subject to criticise and debate (Hansen et al., 2003 cited in Libby and Lindsay, 2010). In this era that full of unpredictable environments has make it even harder for a business to achieve the targets set in the budgets. In fact, European surveys also reported that there has been a growing dissatisfaction among organizations about their budgeting system (Neely et al.,
Quantitative plans are called budgets. Budgets are prepared to impose cost controls on the activities of an organization (Chenhall, 1986).Budgets are then used to evaluate the performance of the management and budget itself is considered as a standard to evaluate the performance Solomon, 1956). The purpose of the budget is also to implement the strategy of the organization and communicate it to the employees of the organization Rickards (2006). The change in the external environment has led to the change in the budgeting approaches from the initial cash based budgets to the zerio based budgets (Bovaird, 2007).
One of the most important steps in the capital budgeting cycle is working out if the benefits of investing large capital sums outweigh the costs of these investments. The range of methods that business organisations use can be categorised in one of two ways: traditional methods and discounted cash flow techniques.
Budget is combining your income and expenses to decide how much money you are going to spend on an item. Budget is an important step to determine your financial health and financial stability. It’s an important financial tool because it can help plan for expenses, cut cost were unneeded, save for future goals, plan for emergencies that occur inexpediently, and list what you are spending and saving.
Capital budgeting is one of the primary activities of a company. Most of the company uses capital budgeting for decision making process of selecting and evaluating long-term investment. The company have to make a right decision with respect to investment in fixed asset such as purchasing of new equipment and delivery vehicles, constructing additions to buildings and many more. The decision must be right because of the project involve huge amount of cash outflow and it is committed for many years.
It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support