The Budget-Building Process
Several steps are involved in this process. The first step is identifying the goals for budgeting. It is important to involve all departmental heads at this stage as they overview the developmental goals for the individual departments. The second step involves a review of the financial status of the organization. This involves a review of balance sheets, previous tax returns, income statements, cash projection and flow, outstanding debts, assets and liabilities. These give an idea of where the current budget starts. The third step involves defining costs. The costs in this step are those associated with the goals identified earlier. Finally, the information is incorporated in a spreadsheet or a budgeting tool (Touche, Opkin, & Halpin, 2013).
Flexible and Static Budgets
A static budget is one that is prepared on the basis of projected output. A static budget is prepared before the start of the budget calendar. This is the budget upon which the operations of the financial year are based. Unlike the static budget, the flexible budget is prepared on the basis of actual outputs. Additionally, this budget is prepared at the end of the budget calendar. In this way, the flexible budget acts as an evaluation tool for the performance of an organization (Caplan, n.d.).
Budget Cycle
The budget cycle consists of phases that allow an organization to consider and react to new information. This is important in the accountability process. The phases include the preparation of the budget and submission, the approval phase, execution and the evaluation and audit phase (Lee, Johnson & Joyce, 2012). Some of the decision rules and problems that may influence how departments relate with the organization include the internal rate of return, time value of the money and the net present value.
References
Caplan, D. (n.d.). Management accounting: concepts and techniques. Retrieved from> http://classes.bus.oregonstate.edu/fall-06/ba422/management%20accounting%20 chapter%205.htm
Lee, R. D., Johnson, R. W., & Joyce, P. G. (2012). Public budgeting systems. Burlington: Jones and Bartlett Learning.
Touche, B. L., Opkin, M., & Halpin, J. (2013). The budget-building book for nonprofits: A step- by-step guide for managers and boards. San Francisco, Calif: Jossey-Bass.
