Question

Write a short essay about accounting and the importance of having a good budget planning and control system

Answer 1

Accounting

meaning

It is a process of recording and analyzing the business's financial transactions and interpreting the acquired information to the interested parties.

Definition

According to Smith and Ashburne, “accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions, and events, which are, in part at least, of a financial character and interpreting the result thereof”.

**you can choose to write the definition by other authors too.

Basic Terms used in Accounting

• revenue
• expenses
• debit and credit
• ledger
• asset and liability
• capital
• cash
• types of assets
• bills payable and receivables
• types of expenses
• trial balance
• balance sheet
• statement of cash flow
• income statement

**You can use a few of these terms in the essay.

Golden Rules in Accounting

Personal Accounts: Debit the receiver, credit the giver.

Real Account: Debit what comes in and credit what goes out.

Nominal Account: Debit all the expenses or losses and credit all the gains or income.

**you can provide examples of each account.

What is the budget?

It is an evaluation of the expected revenue and expenses that a business foresees over a period of time. According to this estimation, they will further decide on their policies and business strategies.

Planning and controlling the budget is a very important activity for any business.

With planning, the business decides on its budget that will be their standard for later comparison with the actual situation of the business. This comparison is done in the process of budget control. A business will measure and compare their actual results with the standards planned in the budget. They will find deviation if there are any and take corrective actions against them. Of course, their work doesn't just end here, they have to keep a check on the corrective measures taken and oversee their effect on their business.

Importance of Good Budget Planning and control system

• Definiteness: With a budget, a business is able to evaluate how much they will be spending and how much they will earn in the future. So there is an element of definiteness with budget planning.
• Increase in efficiency: With the budget control, the business will be able to enhance its operational and functional efficiency and able to better achieve its objectives.
• Cost control and reduction in wastage. With planning and controlling of budget, the businesses can reduce the costs incurred and there will be a decrease in the wastage of the resources.
• Profit Maximisation: With optimal use of resources, cost control, and an increase in efficiency a business will able to maximize its profit and grow further.