The Role Of Budgeting And Its Problems

1911 WordsFeb 4, 20158 Pages
Budgeting is the establishment of budgets and the continuous comparison of actual to budgeted results either to secure the aims of the policy or provide a basis for revision (CIMA, 2000). (Peter Atrill & Eddie Mclaney, 2002) Stated that, it is very vital to recognise that budgets do not exist in a vacuum, they are an integral part of a planning framework that is adopted by well-run businesses. The role of the budget system is to answer the needs of management in respect of the discernment and decisions it is required to work and to provide a foundation for management functions for planning and control (Weetman, 2006). This essay will discuss the role and objectives of traditional budgeting and its problems. (Weetman, 2006) Assess that the…show more content…
o Planning and Control: The budgeting process ensures that managers do plan for future operation, and that they consider how condition in the next financial year might change and what contingency planning will be put in place in response to the changed conditions. (DRURY, 2008) Confirmed that, this may help management to anticipate problems before they arise and hasty decisions that are made based on expediency rather than reasoned judgement. (Weetman, 2006) Stated that, once a budget is put in place; implementation of the plan takes place and actual outcome maybe compared against the budget. Thus, receiving a budget as a basis for comparison allows firms and departments to identify the expectations which need care and allows corrective actions to be conducted in order to resolve existing and future problems (Weetman, 2006). OBJECTIVES OF BUDGETING o Predict Cash flow: Budgeting is important in the assessment of performance of an establishment. Some system has difficulty occasionally when estimating how much cash they are likely have in the near term, which can result in periodic cash- related crises (Bragg, 2010). Therefore, it is very useful for predicting cash flows, but yields increasely unreliable results further into the future. (Mike Bendrey ,
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