There are two financial tools described in chapter five of our textbook that can help you make better financial decisions, the first being the comprehensive budget and the other being specialized budgets. A comprehensive budget is further separated into two more components, an operating budget, and a capital budget. Specialized budgets are also related to the comprehensive budget. (R. Seigel and C. Yacht p. 92-103) Maintaining a healthy financial position requires careful financial planning and budgeting. Businesses use a comprehensive budget to manage their cash and other assets, and to estimate their future sales and expenses, families and individuals should do the same to find and avoid variances that would be disruptive to financial health.
A budget is an instrument used to help managers ensure that the resources used effectively and proficiently toward the goals of an organization. A budget projection can be made on a yearly base depending on previous year or existing one. They can further be broken down quarterly or monthly depending on it use. Generating a budget is complex undertaking, and for a budget to be effective the organization ought to follow it strictly. However, no matter how closely a business follows their guidelines there will always be some form of variances. The organization should expect a few variances and be able to work these discrepancies in any budget
Budget can be modelled in a spreadsheet. For a successful budget, a plan is needed. The term budget means that an amount of money given to individuals or groups to be used for a particular purpose. If the business does not check their cost then it may face bankruptcy. If people do not keep track of their budget then they might end up in debt sometime. For example the university tuition fees. The tuition fees are so high that students end up taking loans of £27000-30000. But the students cannot return the loan they took as a result they end up committing suicide or sometimes face mental depression. This happens because they don’t have a budget control and also they don’t keep track of the money they are spending.
Specialized budgets tend to focus on one aspect or goal. Typically, when this is seen, the budget will have more detailed info on this goal. One example of a specialized budget is a tax budget. A tax budget can predict tax consequences. A comprehensive budget is just the opposite and it shows all aspects of financial activities. A specialized budget relates to a comprehensive budget because it is a portion of total financial activity.
According to Shim, Siegel, Shim 2012, budgets are an efficient method of allocating financial resources to achieve strategic goals. For companies to compete in the global market it is essential to monitor and control spending in order to see progress toward reaching their goals. Budgets help to control spending, estimate cash flow and profits, while striving to meet goals.
A budget is a projection/estimation of the financial requirements and burdens that an individual/business drafts to understand their spending and financial boundaries. A budget generally outlines the situation a person will be in financially and can be created using estimates of future incomes and expenses.
The first thing to consider in deciding whether a cash flow budget would be more useful than a comprehensive budget, is why they are different. Firstly, the comprehensive is one budget for a designated period, such as 6 or 12 months. All income is calculated as one total, and each expense is calculated for the entire period. Whereas, a cash flow budget is broken down into shorter periods, generally per month, it provides a better look at how money is being spent each month.
Budgets can aid planning, which gives a business direction. A budget takes the organisational plan (goal and objectives) and quantifies this into something real to aim for. Such forward planning aids anticipating future business
Budgets are usually created for a purpose of specific goal or objective, either to increase savings, pay off a mortgage, cut on expenses or save for a family vacation, etc. A budget therefore can be considered as a plan or strategy to be able to achieve our financial goals. This process is defined as a projection of financial requirements and consequences of a plan. The financial statements that can help to prepare a budget are the pro forma financial statements. These statements include income statement, cash flow statement and balance sheet based on projections and assumptions. These
Financial tools that help in making better financial decisions are the different types of budgets that we were introduced to and these comprise of comprehensive budgets which include Capital and operating budgets, alternative cash budgets, and specialized budgets. A crucial aspect of the budgeting process however involves constantly defining your goals, reconciling goals and data, creating the budget, monitoring outcomes and analyzing variances and, readjusting budget expectations and goals. This process helps one to assess whether their goals and projections makes sense or if they need to be changed or thrown out completely. A comprehensive budget is a budget that shows both the capital and operating budgets and it its purpose is to reflect
Within the health care field, planning and budgeting is a requirement to have a successful business. Budgeting can be defined as the creation and use of financial forecasts to plan for and control business’s operations. (Gapenski, 2013). In other words budgeting is planning your finances based on how much money you have or make. Within organizations there are different types of budget types such as revenue budgets, expense budget, and operating budget.
In whatever budget one creates, there are financial tools to be considered in order to make better financial decisions. These tools are personal financial planning, financial statements, risk assessment and the time value of money, macroeconomic indicators and macroeconomic or personal factors. All these tools provide a clearer view of the current situation and put the choices in a larger context and therefore gives one a better way to think the way forward. The tools help to know where you are, where you would like to go and how to get there. Financial planning is a continuous process of coming up with financial decisions. Financial statements and budgets summarize the present situation and project the outcomes of the choices made. Personal
In conclusion, every major company in the world uses budgeting and there is a good reason for that. It is an important component of financial success. Budgeting makes easier to achieve financial goals. It keeps track of all expenses and help to avoid crisis. It also helps companies to control their growth and provide them with realistic idea where business is going.
Capital budgeting is the most important management tool that enables managers of the organization to select the investment option that yields comprehensive cash flows and rate of return. For managers availability of capital whether in form of debt or equity is very limited and thus it become imperative for them to invest their limited and most important resource in perfect option that could prove to beneficial for the organization in the long run (Hickman et al, 2013). However, while using capital budgeting tool managers must understand its quantitative and qualitative considerations that are discussed below.
For this piece of assignment, a cash budget will be made for Doomy Corporation for the second quarter of the year. For this budget, all the sales figures for the second quarter and some of the expenditure have been given. Hence, to prepare a cash budget, the sales figure given will be used and some calculations will be worked out in order to fully prepare an outstanding budget for Doomy Corporation the following information will be used efficiently.
The financial tool such as a pro-forma statement can give a better view of a real financial situation of an individual. The financial statements are used to prepare budgets in order to make better financial decisions and planning to achieve short and long term goals. There are different processes in order to prepare a budget, and these processes are: defining goals and gathering data; forming expectations and reconciling goals and data; creating the budget; monitoring actual outcomes and analyzing variances; and, adjusting budget, expectations, or goals.