Financial Accounting for Managers
Maurice Alexis
Strayer University
Prof. Dr Neil Weiss
March 17, 2015
1-Describe the company that you currently work for, have previously worked for, or would like to work for in the future. Determine at least two (2) compelling reasons that this company should prepare and manage a budget. Predict the two (2) most likely positive and negative financial outcomes for this company if it properly or improperly performs effective budgeting. Biomet 3I is the company I have been working for since 2007. Biomet, Inc. is a medical device headquartered in the Warsaw, Indiana business cluster. This company specializes in reconstructive products for orthopedic surgery, neurosurgery, craniomaxillofacial
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Such profits are necessary to provide additional compensation to shareholders/owners while constituting capital for future growth, repayment of debt, etc. By the way, it’s a good idea to create a personal budget, so the management team will know how much they need each month from the business in terms of salary and draws, distributions or dividends. Budgeting systems turn managers’ perspectives forward and by looking to the future and planning, managers are able to anticipate and correct potential problems before they arise (Horngren, Foster & Datar, 2000). Through budgeting, management can plan ahead and maintain enough cash to pay creditors, to have adequate raw materials to meet production requirements, and to have sufficient finished goods to meet expected sales (Kieso, 2002).
Careful planning is required to guide all parts of the organization towards its strategic long-term and short-term objectives. Anthony & Govindarajan (2000) saw strategic planning as being focused on several years, contrasted to budgeting that focuses on a single year and so a budget is a one-year slice of the organization’s strategic plan. The budget prepared for planning purposes, as part of the strategic planning process, is the quantitative plan of management’s belief of what the business’s costs and revenues will be over a specific future period (Davies & Boczko, 2005). According to Atrill & McLaney (2002), a budget’s role is
| The business itself does not retain any profits. 100% of profits remain with the owner and is considered personal income.
In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial
Fraser, L. M., & Ormiston, A. (201). Understanding financial statements (9th ed.). Upper Saddle River, NJ: Prentice Hall.
This research paper is a brief discussion of budget management analysis. Budgeting is the key to financial management, and is the key to translates an organization goals or plan into money. Budgeting is a rough estimate of how much a company will need to get their work done, and provides the basis for evaluating performance, a source of motivation, coordinating business activities, a tool for management communication and instructions to employees. Without a budget an organization would be like a driver, driving blinded without instructions or any sense of direction, that’s how important a budget is to every organization and individual likewise (Clark, 2005).
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
The company makes money through the investments they make in purchases, which is the source of cash and cash equivalents.
A budget can be disadvantageous also. There is judgment and subjectivity in the budgeting process. It does not consider quality and customer service. Budgets can be seen as pressure devices imposed by management, thus resulting in: bad labour relations. Budget could results departmental conflict arises due to disputes over resource allocation, and departments blaming each other if targets are not attained. It is difficult to reconcile personal and corporate goals
Budgeting is crucial in the well-being of a company especially the financial health status of a company. In fact, no professionally managed firm would fail to budget, since the budget establishes what is authorized, how to plan for purchasing contracts and hiring, and indicates how much financing is needed to support planned activity. It is routine for a company to budget for its expenses. Expense budgets act as a guideline of how much revenue a company would require keeping the activities running. It is used to set the company’s targets for a certain period.
The purpose of this paper is to examine the question of whether the budget has outlived its usefulness in the 21st century. Over the past 20 years, people within the academic and business worlds have argued that it is time for companies to move away from traditional budgets to a concept known as beyond budgeting (Sandalgaard & Nikolaj Bukh, 2014: 409-410). Researchers and business practitioners have argued that the traditional budget process requires too much time, with some estimating that traditional budgeting requires 20% of management time throughout the year to complete (Neely, Bourne & Adams, 2003: 22). Others have also argued that traditional budgeting is flawed because it provides an incentive for managers to essentially lie about how much money they project to spend or the revenue and profits they project to achieve in order to receive more monies or to demonstrate reduced spending to corporate leaders (Hope & Fraser, 2003: 108). However, some researchers and practitioners have explained that the entire idea that the traditional budgeting process is going to end in favor of the beyond budgeting concept is incorrect given that most organizations continue to prepare and use traditional budgets (Jackson & Starovic, 2004: 2).
“It’s clearly a budget. It’s got a lot of numbers in it” (George W. Busch 2005). This definition of a budget can be supplemented using the Oxford dictionary, which states that a budget is an estimate of income and expenditures for a set period of time. Nowadays almost every business uses budgets and managers use them as a tool in order to set targets. In other words managers can, with the use of budgets, explain in a financial way what are the
It is important that an effective business plan establishes a comprehensive relationship between budgets, long term strategies and short term operating plans. The process begins with developing a rational mission that will consider the needs, wants and desires of the organization. Once a rational mission has been established a budget that is within the company’s limits can be drawn. Budgeting is critical to any organization since money is policy. A budget provides an overview of the inflows and outflows of cash within a company and helps to determine the ability of a company to pay its current expenses. The strengths of having a budget include strategic planning, accountability and integrity. Strategic planning aids in handling various issues according to the level of importance, that is, the organization sets its priorities right (Bechet 112). This way, the very urgent issues are tackled first. Accountability, which makes the department and service line managers in charge of the budgeting process accountable of any cash flow transactions, is equally vital. It enables the organization to conduct its activities with transparency and integrity. The department and service line managers are held accountable by the management through clear statement of the consequences to be faced in cases where they cannot account for a particular transaction. The relationship between budgets, long term strategies and short term operating plans occurs in numerous dimensions. Budgeting helps in
Budgets generate a point of reference, making it easier for managers to accomplish activities with stability. As long as managers can meet the set parameters, budgeting and the use of budget cost centers provide them with the liberty to run their operations (Neely at al., 2003).
In this research paper I will be explaining the importance of an organization having a pre-planned budget. Without the proper budgeting systems most organizations probably would end up spending more than their means which could ultimately cause a great amount of hardship. First let me start off by defining what a budget is, a budget can be defined as” the process of creating a plan to spend an organization or individual’s money. “ (Peavler, 2016)
1. Harrison Jr., Walter T.; Horngren, Charles T., Financial Accounting, sixth edition, New Jersey, USA, 2006.
Budget and budgetary control practices are undeniably indispensable as organizations routinely go about their business activities and operations. These organizations are constantly on the alert on how actual levels of performance agree with planned or budgeted performance. A budget expresses a plan in monetary terms. It is prepared and approved prior to a particular budgeted period and explicitly may show the income, expenditure and the capital to be employed by organizations in achieving their goals and objectives.