Budgeting DB 2
Budgeting DB 2
The quantitative or financial plan for the coming period of the business is called the budgeting of the business. The budget plays an important role in the planning of funds allocation, responsibility accounting, and motivation of the employees and the control of the business. On the other hand the forecasting is the judgement or estimates made by the management of the business for the coming period. In forecasting the management utilizes the probability, trends and the previous outcomes of the business to estimate the future outcomes of the business. (Ashe-Edmunds)
Cash budgets are the best way to estimate, if the organization will be in a position to manage the regular cash payments of the business. Moreover, cash budgets also indicate the estimates unused cash for the coming period. Another important aspect of cash budget is that cash budget, determine the feasible credit terms on the basis of availability of the cash. The operating budget is a short term budget which mainly focuses on the operating expenses of the business. The budgeting for the utility bills, sales, salaries of employees, production costs and the tax liabilities payable in the current year are the main transactions related to operating budgets. (Withrow)
In every business, there are numbers of cost centers which consume the funds of the business. Zero based budgeting suggest that the budget for every cost center starts from zero and the manager of the relevant cost center must justify the required funds which are required to accomplish the objectives of the organization. Management of the business can rank the cost centers on the basis of their importance. For example, the management of the business can allocate low funds for the farewell party for their employees. Similarly, management can allocate funds for the hiring of new technical staff. Moreover, management of the business can divide the budgets of all the cost centers into two categories, which are the ’base package’ and ‘incremental package’. According to zero based budgeting, the management must issue the funds to the cost center to survive, which is called ‘base package’. Moreover, if the manager at cost center needs more funds, then the manager must justify the expense. This allocation of funds is called ‘incremental budget’. ("Zero-base budgeting,")
References
Ashe-Edmunds, S. Differences between forecasting & budgeting. Retrieved from
http://smallbusiness.chron.com/differences-between-forecasting-budgeting-57667.html
Withrow, C. Cash budget vs. operating budget. Retrieved from
http://www.ehow.com/info_7749249_cash-budget-vs-operating-budget.html
Zero-base budgeting. Retrieved from http://www.accountingtools.com/zero-based-budgeting
