Budget Preparation Essay Example | Topics and Well Written Essays - 1500 words

Budget Preparation - Essay Example Often for a commercial organization which is both a manufacturer and seller budgets envelope all activities and in the discussions taken up in this paper only such organizations would be cited. Due to their important lighthouse role to the business ships targeting to shore a decent profit mechanics of preparing various categories of budgets and their importance for decision making managers assumes importance. This paper covers these two aspects primarily, taking adequate precaution to explain in detail, encourse, the important categories of budgets. Budgets are drawn to assist in clarifying and attaining business objectives. These objectives can be varied but can be commonly listed as minimizing costs/controlling expenditures, increasing revenues, gaining a higher market share, improving spread/margins (through increased sales), etc. Therefore, a statement of identified objectives becomes important at the commencement of budgeting. Once these objectives have been set then the rest of the budget can fan out after a series of logical coordination. Subsequent to the statement of identified business objectives and determination of the budget period (say 1 week, 1 fortnight, 1 month, 1 year, etc), additional information need to be gathered in order to compile the budget. This information generally includes past and current performance data procured from profit and loss accounts, balance sheets and previous cash flow forecasts of the organization. In case of a new business peer studies can be important guide posts. To help new concer ns, good amount of classified data is published by various industry associations. Irrespective of the context this information can then be used to identify probable sales in number of units and associated costs in the future. One approach to budgeting is to compile from scratch ignoring all previous historical data and current performance: this is termed as zero-based budgeting which can be risk prone and should be taken up by those who have very realistic estimates of strengths of their concern vis a' vis market demands. It is commonly observed that during the preparation of budgets certain figures are easier to state with confidence than others. For instance, costs fall in former category while predicting sales falls in the latter category. The obvious reason for this is the fact that sales are affected by several probable factors (e.g. increase or decrease in demand, level of competition, changes in consumption pattern,technology,fashions,fads etc);while costs are technically sta ted and determined by suppliers/government policies and remain relatively stable.However,these are to be stated preferably on some historical and comparable base. This paper would exhibit subsequently important functional budgets that follow from statement of sales and cost objectives; however two important points need emphasis in respect to the process of budgeting-one, ideally the budgeting should be grass root