Question

(1) Why is it important for a company to prepare a budget?

(2) Explain the main differences between a budgeted statement and a cash budget.

(3) Explain the ethical considerations as it relates to using budgets as a basis for rewarding managers?

(4)Explain three specific benefits that a system of budgetary planning and control may bring to an organization.

List your references.

Answer 1

Question 1 Why is it important for a company to prepare a budget?
Answer
Budgeting plays an important role to achieve the objective of the organization by utilizing available resources efficiently. With the help of a budget plan, it is easy to do the financial analysis that you have enough money to do things that you have planned to do.A strong budgeting plan improves performance evaluation and provides useful insights for decisions making. However, creating an efficient budgeting plan is not as easy as you think. You need to spend a lot of efforts to make it better and consider useful budgeting tips such as calculating revenue versus expenditures

Question 2 Difference between budgeted statement and cash budget
Answer
Cash Budget vs budgeted Statement

Cash budget includes the estimates of cash inflows and outflows for the accounting year. budgeted statement provides an estimation of revenues and costs.PurposeThe purpose of the cash budget is to estimate the liquidity position of the company.The purpose of the projected income statement is to estimate the liquidity position of the company.Net Result The net result of master budget is referred to as net profit or net loss.The net result of cash budget is referred to as surplus or deficit.

Question 3 Explain the ethical considerations as it relates to using budgets as a basis for rewarding managers?

Answer An inherent conflict often exists between the planning and control phases of budgeting. During the planning phase, organizations are most concerned about getting accurate estimates that lead to positive results. The control phase requires evaluating performance of employees by comparing actual results to the operating budget. Employees often must decide between doing what is best for the individual employee and what is best for the organization.

Question (4)Explain three specific benefits that a system of budgetary planning and control may bring to an organization
Answer
Budgeting plays an important role in the effective utilization of available resources in order to achieve over all objectives of an organization.
--->1Budgeting forces the management to study about the problems relating to the timely implementation. It generates a sense of caution and care among the line managers.
--->2 Guides the management relating to the planning and formulation of policies.
--->3 Budgeting provides a means of controlling income and expenditure of a business. It gives a plan for spending.
--->4 Defines the objectives of an organization in numerical terms for a specific period.