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account principle - Essay Example

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Undergraduate
Essay
Finance & Accounting
Pages 6 (1506 words)

Summary

Budget in any corporate entity serves several purposes and those can be described as per the following. a) It is an instrument to plan and deploy the resources to achieve the short-term and long-term goals of any organization…

Extract of sample
account principle

b) It is a tool to control the activities of different subunits within the organisation. c) Budget exercise is used as a tool for forecasting and it can be used to motivate employees towards the set goals. Budgetary activity facilitates the planning process of the firm in a systematised manner keeping in view the organizational goals. Budget not only helps allocate resources and set the direction of the firm but also helps determine priorities to act in a manner that can bring results. Since budget sets targets in numbers, monitoring becomes easy and effective; it helps guide and coordinate activities of different functional units within the organisation. For startup businesses, a budget acts like a roadmap that helps them formulate goals and assess their functioning. For established businesses, a budget helps them see their performance through the years and likely future growth prospects to justify their capital investments. By comparing actual and budgeted figures, management can see how well or bad their organisation is sailing through in the marketplace. Budgets help forecast the need of cash flow without which any business is likely to strangle and suffer immensely. Budget brings efficiency in the operation by providing a framework for performance evaluation of different unit heads and the whole organisation. Budget is the best way of controlling expenses and to take remedial measures as and when becomes necessary ((Budgets and Budgeting, 2012). ...
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