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Finance & Accounting
Pages 3 (753 words)
Budgets and performance reports can be used by managers to improve the decision making at a company. Budgets enable a manager to project the future revenues and costs associated with a time period. It is imperative for budgets to have accurate sales and expense forecast.
The budget can be considered a comprehensive short term plan of the future of a company and the actions that are needed to implement the plan. The use of budgeting has many advantages. Budgeting can be used as a means of communicating management’s plans throughout an organization (Garrison & Noreen, 2002). A set of financial reports that are very useful for the stakeholders of an organization are its financial statements. The four basic financial statements are the income statement, balance sheet, statement of cash flow, and statement of retained earnings. The income statement provides information regarding the profitability of a company during an accounting period. The typical accounting cycle is completed in one year. The net income is the final outcome of the income statement and it provides the net profits that are earned during a period of time. This statement can be used to improve the decision making of the firm to achieve better financial results. For instance if a company has a net margin of 2% and the industry net margin is 10%, the company had profitability problems. A manager may decide to implement a cost reduction plan across the entire organization in order to increase the profitability of the firm by lowering the total expenses. ...
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