This paper compares three basic terms that are planning, control and budgeting and describes the process involved in preparing a master budget and behavioral issues that a firm may face while preparing the budget. Planning, Control and Budgeting A successful organization prepares both short and long term planning. Weygandt, Kimmel and Kieso, 2009, p. 388) pointed that planning is the process of establishing enterprise wide objectives because plans not only set forth the objectives of the company but also the proposed ways of accomplishing them. As Davies and Pain (2002, p. 410) described, planning refers to the establishment of objectives and the formulation, evaluation and selection of the policies, strategies and tactics that are required for achieving the established objectives. Planning includes long term planning or commonly termed as strategic planning and short term planning. ...
410). Long term planning involves strategic planning over two or more years and the identification of the basic strategy that the firm may follow and the gaps between future needs and present capabilities of the firm (Drury, 2006, p. 426). As long-term plans include looking in to future for two or several years, the plans may become uncertain, imprecise and subject to change. Long term planning or strategic planning expresses certain steps required to achieve an organization’s goals because it considers intermediate and distant future. Long-range plans give detail about major capital investments required for maintaining present facilities, increasing capacity, diversifying products or procurement and developing markets. Long-range plans may aim at cost control or increasing market share for duration of three or more years (Hilton, Maher and Selto, 2005, p. 597). Budgeting involves the coordination of both financial and non-financial planning with a view to satisfy organisational goals and objectives. It involves planning for future profitability because maintaining long-term profitability is very critical to organizational objectives. Kimmel, Weygandt and Kieso (2008, p. 1010) emphasized that budgeting and long-term planning are not the same. The main difference between them is the time period involved. Maximum length of a budget is one year and therefore budget is a kind of short-term plan. Other major differences between the long-term planning and budgeting are the emphasis and the amounts of details presented. Budgeting is meant for achieving certain short-term goals like meeting annual profit goals whereas long-term planning is meant to identify long-range goals, find and select effective strategies and develop policies and plans to implement the
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PLANNING, BUDGETS AND CONTROL Finance and Accounting Your name …………………………. College ……………………………… ………………. Words count: 3073 Table of Contents Table of Contents 2 Introduction 3 Planning, Control and Budgeting 3 Interconnection of planning, budget and control 5 Annual Master Budget 6 Potential issues related to budgeting process 10 Budgetary Slack 10 Participative Budgeting 12 Ethical issues in budgeting 12 Conclusion 12 References 14 Introduction One of management’s major responsibilities is planning which is the process of establishing enterprise-wide objectives…
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