Long-Term & Short-Term Budgetting
Introduction
Budgeting is indeed a key component in managing short and long term planning. To define a broad objective such as wealth maximization is clearly not sufficient to achieve the goal. It is very important for an entity to get into more details over how to work towards the objective. Businesses typically do this by crafting a long-term plan and short-term plan which I will be explaining in details.
Budgeting
Before I proceed, it is very important for us to understand what is budget and how it works. A budget is a formal written summary (or statement of management’s plan for a specified future time period, expressed in financial terms. A budget becomes an important basis for controlling operations and evaluating performance. Thus, it promotes efficiency and serves as a deterrent to waste and inefficiency (Carlon, et al., 2009, p. 882)
Types of budget
There are several types of budget namely trade receivables budget, sales budget, finished inventories budget, trade payables budget, production budget, direct labour budget and many more. The list continues and varies from industry to industry.
Budget usefulness
Budgets are generally regarded as having four area of usefulness. * Budgeting promotes forward thinking and the possible identification of short-term problem. * They can also be used to help co-ordinate various sections of the business. * They play an integral role into motivating managers to perform better. * Providing basis for a system control, and lastly * Budgets can provide a system of authorization for managers to spend within the limit. (Merchant, Hawkins, & Anthony, 2006, p. 560)
The Planning process
Figure 1 the planning process
Source: (Banham, 2000, p. N.A)
The above shows the relationship between budgets, long-term planning and short-term planning.
The budgeting process
The development of the budget for the coming year generally starts several months before the end of the current year. The
Budgeting is indeed a key component in managing short and long term planning. To define a broad objective such as wealth maximization is clearly not sufficient to achieve the goal. It is very important for an entity to get into more details over how to work towards the objective. Businesses typically do this by crafting a long-term plan and short-term plan which I will be explaining in details.
Budgeting
Before I proceed, it is very important for us to understand what is budget and how it works. A budget is a formal written summary (or statement of management’s plan for a specified future time period, expressed in financial terms. A budget becomes an important basis for controlling operations and evaluating performance. Thus, it promotes efficiency and serves as a deterrent to waste and inefficiency (Carlon, et al., 2009, p. 882)
Types of budget
There are several types of budget namely trade receivables budget, sales budget, finished inventories budget, trade payables budget, production budget, direct labour budget and many more. The list continues and varies from industry to industry.
Budget usefulness
Budgets are generally regarded as having four area of usefulness. * Budgeting promotes forward thinking and the possible identification of short-term problem. * They can also be used to help co-ordinate various sections of the business. * They play an integral role into motivating managers to perform better. * Providing basis for a system control, and lastly * Budgets can provide a system of authorization for managers to spend within the limit. (Merchant, Hawkins, & Anthony, 2006, p. 560)
The Planning process
Figure 1 the planning process
Source: (Banham, 2000, p. N.A)
The above shows the relationship between budgets, long-term planning and short-term planning.
The budgeting process
The development of the budget for the coming year generally starts several months before the end of the current year. The
References: Banham, R. (2000). Better Budgets. Journal of Accountancy, N.A. Budgeting. (2010). Retrieved from Entrepreneur: http://www.entrepreneur.com/encyclopedia/term/82266.html Business Dictionary. (n.d.). Retrieved from Defination of Long-term Planning: http://www.businessdictionary.com/definition/long-term-planning.html Carlon, S., Mladenovic-Mcalpine, R., Loftus, J., Palm, C., Kimmel, P. D., Kieso, D. E., & Weygandt, J. J. (2009). Accounting building business skills. New York: John Wiley & Sons. Hillstrom, E. K. (2013, Jan 27). "Budgets and Budgeting.". Retrieved from Encyclopedia of Small Business.Vol. 1. Gale Cengage: <http://www.enotes.com/budgeting-reference/> Merchant, K. A., Hawkins, D., & Anthony, R. (2006). Accounting Text & Cases. Australia: McGraw-Hill Education.