Question

Accounting and Finance:

Gather and present some literature review on budgetary system

1500 words

Answer 1

The existence, developemnt and environmental adaptation of an economic entity generates a complex network of financial flows that define the general assembly of financial economics at both microeconomic and macroeconomic level, natioally and internationally. Developing a company must be based on knowledge of its capabilities, weaknesses and strengths as well as external macroeconomic environment. from these results it is absolutely necessary to develop an appropriate policy to ensure not only the maintenance of the business to a certain level but also for developement in accordance with the changing economic environment in which it operates.

for this policy to be as accurate and useful to the executive bodies of the economic entity, it must set clear financial goals to be acheived and to accurately scale capital needs that can be used cost effectively. Also, such policy must be gared towards the future and try to predict optimal financing possibilities depending on existing cost of raw materials, capital and finished goods market in which the company operates. To conduct a profitable business, the management of any economic entity has to predict expenses, receipts and payments for a certain period of time. This is why budgets are grown to be a primary tool for financial forecasting within economic entities.

Budget can be interpreted as a general finance specific methodological process through which, it highlights how formation and sizing of financial resources is done in particular economic entities on the one hand and the distribution to various destinations of resources for the fulfillment of predefined targets on the other hand.

Planning finances of a company is acheived through the process of budgeting the business activity. This is an operational plan on a given time horizon, usually one year, which includes forecasting revenues and expenditures of a company, additional capital needs and how to finance them and the main indicators charecterizing the hoped efficienc. Even if the budget is a financial plan regarding the future revenues and costs of a business, it is about much more than just financial numbers. Budgeting process involves choosing specific objectives of future activities and company policies, programs and procedures designed to ensure the necessary conditions for acheiving these objectives.

budgets have always played a key role in managing an institution both private and public being an important control in many companies.

Managers are responsible for the realization of the indicators within their budgets and for any variance for the esteemed values, cases in which they are required to take remedial action.

Budgets are used by management for different uses such as to

• control income and expenditure,
• establish priorities and set targets in numerical terms,
• provide direction and co-ordination, so that business objectives can be turned into practical reality,
• assign responsibilities to budget holders and allocate resources,
• communicate targets from management to employees,
• motivate staff,
• improve efficiency,
• monitor performance.

The budgeting process has some features that are particularly important to any economic entity. First, it is oriented towards a specific well established purpose of the company that provides management a good reference for the assessment of predetermined objectives. secondly, favors the introduction of a system of control over the management of all types of resources used within a company and thirdly, but not the least, it co-ordinates the efforts of all organizational structures of the company in acheiving the objectives set as all are engaged in the budgeting process.

This is why an efficient budgetary systems has a positive impact on the ability of the management to anticipate and respond to articulated measures to opportunities and pressures from the environment in which the company operates, thus being a critical aspect for acompanys survival in a changing business environment such as the present one, due to the fact that budgets are an interactive tool between different levels of management, assuring an open dialogue within a company.