Question

In: Accounting

What do we mean by these 3 descriptors in relation to budgets and financial plans 1....

What do we mean by these 3 descriptors in relation to budgets and financial plans

1. Achievable

2. Comprehensible

3.Accurate

Solutions

Expert Solution

As we know that budgets and financial plans are made for future time period and these budgets & plans contains standards for future time period which need to be obtained in near future time by an enterprise.

Now let’s explain all three concepts;

1. Achievable;

Budgets and financial plans are made for setting future standards so that actual performance of the business entity can be measured more accurately or can be controlled effectively. Thus we can say that achievable refer to those business plans or objectives which can be obtained with the business efforts of the firm or company. In other words we can say that goals & objectives of the budgets & financial plans which can be obtained are known as achievable.

2. Comprehensible;

As we know that budgets or financial plans can be made in parts or can be prepared in whole. So whenever budgets or financial plans are made considering most of the financial activities of the business then such budgets or business plans are known as comprehensible. In other words we can say that a comprehensive budget & comprehensive financial plan is a compilation of an operating and capital budgets & financial plans as well. As we know that operating budgets & plans are made for short-term involving recurring items wheras a capital budget & financial plans made for long-term involving nonrecurring items, so when budgets & financial plans made including all such things then it is known as comprehensible.

3.Accurate;

Accurate means near to actual performance or exactly equal to actual results. In other words we can say that when standards fixed in budgets or financial plans are more close to actual results then such standards in the budgets or financial plans are known as accurate. So when information of the budgets & financial plans do not carry more deviations then such budgets & financial plans are known as accurate.


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