The Advantages Of Budgeting Accounting Essay



For Y-Budget Ltd, it is clear that the budget is an important part of management accounting, it is a significant tool for management planning and control. Furthermore, budget systems based on the allocation of resources (e.g. garden ornaments materials A&B). It mainly used to measure and monitor the business performance of enterprises and departments to ensure that the final realization of the company's strategic goals developed business plan for the future. In addition, budgets are prepared in order to guide the firm towards its objectives (Frank wood and Alan Sangster 2002, P525). Budgets are used to evaluate staff performance and linked with achievement of targets. Budgeting is such an important area for business, and other organizations, that is tends to be approached in a fairly methodical and formal way, include establish who will take responsibility, communicate budget guidelines to relevant managers, identify the key or limiting factor, prepare the budget for the area of the limiting factor, prepare draft budgets for all other areas and so on (Eddie McLaney and Peter Atrill 2005 p401-405).Also, it has pros and cons.

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Meanwhile, budgets have behavioral aspects, such as participation, tightness of budgets, use of budgets and other areas.

Description of budgets:

Budget (or profit plan) means that short-term financial plan, it can be said to control the widest range of technology, as it relates to the entire organization, not just one of the few sectors and working towards the business aims, it usually prepared for a one-year period with sub-periods of a month. There is usually a separate budget for each key area. Budget is a systematic method used to allocate the financial, physical, and human resources to achieve the established strategic business objectives. Budget is a quantitative plan, can help to coordinate and control the resources to get some time to configure and use. Organizations through a formal budget planning and control as the center, to distinguish between the coefficient of performance of the available time. Includes not only the content of budget forecasts, but also to a planned way to deal with all the subtle variables that determine the company's future efforts to achieve good performance status. Enterprises can use the budget to monitor the progress of implementation of strategic objectives, help to control expenditure, and forecast the cash flow and profit. Moreover, budgeting process also played an important analysis role in financial managements, it setting the aims and objective of the enterprise, as well as identifying the options available. What's more, it contained evaluated the options and made a selection. More importantly, the reason why produce budgets was that planning(in advance-enough resources such as labor, raw materials and identify problems action, coordination(actions of different parts of an organization brought together 、work towards the achievement of company objectives, departments do not work in isolation)(Jones R 2002 ), motivation, communication, control etc.

The advantages of budgeting

Clarity of the budget can be seen by the company's cash flow and profits, and also through its can effectively control expenditure. Budgeting plays an important factor in financial managements and firms. Then, for drives managers, budget managers can motivate better performance and it can help her or him to find cost effective ways to improve operations and to detect inflated budgets. Budgets also can provide authorization management system and take specific restrictions. Facilitate decision-making through the budget targets can be specific, systematic and quantitative to clearly defined their respective business-related production and management personnel responsibilities and the corresponding goals so that everyone can know fairly well in advance. More precisely, it can enhance comprehensive, integrated, coordinated, planning departments within the enterprise at all levels and functions of economic relations. At the same time, through the budget, it can create standards for evaluating the financial situation of enterprises. Actual numbers will be compared with the budget, you can discover problems and adjustment bias, so that economic activities of enterprises conducted by the intended target to achieve the financial targets. It tends to promote forward thinking and short-term problem may be the recognition. And for the assistance, cooperation between enterprises in various parts of the coordination, it is very important in all sectors and business activities linked to such an activity is complementary to another person

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What's more, through the budget methods to effectively monitor progress in implementing the strategic objectives. Budgets can provide a basis for a system of a control (control concerned with ensuring that events conform to plans) (Eddie McLaney and Peter Atrill 2005.p399-p400)

Furthermore, budgeting can motivate staff as it can be used for assessing performance in a department and measuring there success, as well as enhance staff's initiative and enthusiasm, sense of responsibility of staff and cultivate the sense of responsibility of staff. In addition, it could effective allocation and use of resources, as it is based on the needs and interests as a standard. . And, it can help to strengthen communication and coordination within the organization. To be more importantly, it benefit for recognition and action to reduce waste and outdated.

This approach will tend to reduce the bias between departments, reduce the appearance of the Kingdom of departments and organizations to reduce the shortcomings in the isolated and outstanding communication. Further, it adopted the principle of relying on exceptions to the authority of the representatives of management encouraged.

Criticisms of Budgeting(300å­-)

Takes up enormous amount of management time

Encourage incremental thinking

Protect rather than lower cost

Behavioral aspects of budgeting(重点400å­-)


This report illustrates that the importance of budgeting. According to Y-Budget Ltd, this company takes police to hold hocks of garden ornaments at the end of each month of the following month's sales demand. Budgeting is benefit for this enterprise to allocate the financial, physical, and human resources to achieve the established strategic business objectives. Furthermore, it can help Y-Budget Ltd managers to cultivate staff responsibilities and improve their enthusiasms, and profits earned better. Certainly, it can bring many interests for company. However, not only can bring benefits for the company but also has little problems in it. They should pay more attention to improve the budgetary mechanism and further improve the persistent effect. At the same time, effective use of company funds is also very important. Budgeting system is an integral part of the company, especially business objectives. The budget classifications are complex and detailed which needs clear plan. From the first part, according to the calculated product and materials purchasing budget units, as well as the value of the budget, there is no effective mechanism to detect using the budget to solve the problem, although Y-Budget Ltd have taken some policy to hold hocks of garden ornaments and the product details for a single ornament, however Y-Budget Ltd operates a just-in-time system for raw material stocks and no change in raw material stock levels are planned. Budgeting is very important for enterprises, especially it can cultivate staff's initially and sense of the responsibilities, in addition, it can help managers to raise them to find cost effective ways to improve operations and to detect inflated budgets. What's more, it can help enterprises effective coordination of all parts and create standards for evaluating the financial situation of enterprises.