A financial reporting system refers to an established system of presenting an organization’s financial data, its operating performance and its flow of funds for a given accounting period. This system is guided by a set of accounting standards that dictate how particular transactions are reported in financial statements (Miller and Bahnson, 2002). The major components of financial reporting systems are the balance sheet, income statement, statement of retained earnings and statement of cash flow.
An operation budget is essentially an estimation of operations costs. The management can use this type of budget to measure variances with the actual operation costs and take corrective actions. On the other hand, an activity based budget presents a better option because it attempts to relate the cost of performing a particular activity with the relative demand for that particular activity. This budget presents the organization’s budget in terms of products and services rather that the traditional cost factors used by an operating budget (Elliott and Elliot, 2008). The management can therefore use it to analyze every production operation that takes place in the business and establish ways of making improvements so as to save money. In an operating budget, managers forecast the next accounting periods’ revenues using historical figures and then derive the accompanying schedules based on these forecasted revenues. The activity based budget on the other hand begins with the output and then establishes the resources required to produce that output. It actually works backwards from the various activities and their specific cost drivers towards the underlying costs (Miller and Bahnson, 2002)
For ICBI to plan effectively, it must follow a given set of budget guidelines. The following is a sample set of guidelines that might come in handy during the preparation of the company’s budget.
Salaries and Wages
For each position, the following information should be provided: name of staff member who is occupying that position, annual salary, and responsibility scope, percentage of time that is budgeted for the particular position, the total number of months that the salary is budgeted for and the total salary.
Fringe Benefits
These are usually applicable to wages and direct salaries. Information should be provided on the fringe benefits rates and their calculation basis.
Consultant Costs
These costs arise when a freelance individual or organization is hired to provide professional advice or special services for a given fee. Written approval must be given by the CDC before any consultant services take place. In the budget request, a summary of proposed consultants and their fees should be given.
Equipment
There should be an accompanying justification for the use of every item and its relation to the programs’ objectives.
Supplies
Each item requested should be listed individually. The following factors should be indicated clearly; each item’s unit cost, number needed and finally the total amount. There should also be an accompanying justification for every item and its relation to the program objectives.
References
Elliott, B., & Elliott, J. (2008). Financial accounting and reporting. Harlow: Financial Times Prentice Hall.
Miller, P. B., & Bahnson, P. R. (2002). Quality financial reporting. New York: McGraw-Hill.
