Question

2) Name the primary benefits of budgeting?

3) What should be the length of the Budget period and why?

4) What factors should be considered in Sales Forecasting?

5) What is the advantage of Participative Budgeting? Disadvantages?

6) What should be the first budget prepared?

7) What are components of the Cash Budget?

Answer 1

2]Benefits of Budgeting

1 Gives you control over your money – A budget is a way of being intentional about the way you spend and save your money.    It is said that with budgeting, you control your money and not your money controls you. Budgeting saves you the stress of suddenly having to adjust to lack of funds because you did not initially plan how to spend them. It also helps you decide if you want to sacrifice short term spending like buying coffee everyday in exchange for a long term benefit like a cruise vacation or a new HDTV.

2 Keeps you focused on your money goals – You avoid spending unnecessarily on items and services that do not contribute to attaining your financial goals. If you are working with limited resources, budgeting makes it easier to make ends meet.

3 Makes you aware what is going on with your money – With budgeting, you are clear on what money is coming in, how fast it goes out, and where it is going to. Budgeting saves you from wondering every end of the month where your money went. A budget enables you to know what you can afford, take advantage of buying and investing opportunities, and plan how to lower your debt. It also tells you what is important to you based on how you allocate your funds, how your money is working for you, and how far you are towards reaching your financial goals.

4.Helps you organize your spending and savings – By dividing your money into categories of expenditures and savings, a budget makes you aware which category of expenditure takes which portion of your money. That way, it is easy for you to make adjustments. Budget also serves as a reference for organizing your bills, receipts, and financial statements. When all of your financial transactions are organized for tax time or creditor questions, you save time and effort.

5. Enables you to save for expected and unexpected costs – Budgeting allows you to plan to set aside money for emergency costs.

6 Enables you to communicate with your significant others about money – If you share your money with your spouse, family, or anyone, a budget can communicate how you use money as a group. This promotes teamwork on working for common financial goals and prevents conflict on how money is used. Creating a budget in tandem with your spouse will avoid conflicts and resolve personal differences on how your money is spent.   Budgeting teaches family members spending responsibility and accountability.

7 Provides you with an early warning for potential problems – When you budget and take a “big picture” view, you will see potential money problems in advance, and be able to make adjustments before the problem appears.

8 Helps you determine if you can take debt and how much – Taking debt is not necessarily a bad thing if the debt is necessary or you can afford it. Budgeting shows you how much a debt load you can realistically take without being stressed or if taking the debt load is worth it.

9 Enables you to produce extra money – In budgeting, you get to identify and eliminate unnecessary spending like late fees, penalties and interests. These seemingly small saving can add up over time

3)Even though yearly budgets are the most commonly used, the length of time of a budget depends on its purpose and nature. A capital budget may extend for a couple of years if, for example, it entails building a warehouse. But, whether a budget is a capital or operating budget, they are usually broken down into smaller periods of time to better control their activities. Budget periods are usually years, quarters or months and directly link to the completion of specific portions of a project or activity.

4) Past Economic Performance. ...

• Current Global Conditions. ...
• Current Industry Conditions. ...
• Rate of Inflation. ...
• Internal Organizational Changes. ...
• Marketing Efforts. ...
• Seasonal Demands.

5) The advantages of their use can be maximized by using a participatory budgeting process. From our point of view, this participatory system also offers some disadvantage.  participatory budgeting requires a thorough bi-directional communication, mutual trust, commitment, time, effort and implies cost for the entity.

6) The first Budget to be prepared is the sales budget because the production budget and all the other budgets for the company are derived from the sales budget. If sales are expected to be low, the company does not need as much inventory or as many sales people, and so on. On the other hand, if sales are expected to be high, more of each of these resources will be required.

7)  A cash budget allows you to estimate and track all of the money that comes into your business and leaves it. Every cash budget, whether used by a corporation or an individual, contains the same basic components.

1]General Components-Cash budgets contain three general parts, as indicated by the eSmallOffice website: the time period, desired cash position and estimated sales and expenses. The time period specifies how long the given cash budget will apply, such as six months or two years. The desired cash position shows how much cash you should have on hand; this is your reserve. The last part of a cash budget involves estimated sales and expenses, including items like payroll, advertising, and receipts and other income.

2]Income and Expenses:- Estimated sales and expenses represent the most complex part of a cash budget. The elements of this part include the beginning cash balance, cash collections, cash disbursements, cash excess or deficiency, and ending cash balance. The beginning balance shows how much money you have before you've accounted for any expenditures or additional income. Cash collections are any monies your business takes in, such as sales receipts. Cash disbursements show where you must spend some of your money, such as on employee pay. Cash excess or deficiency indicates whether your business funds are sufficient to meet operating expenses and pursue projects. Financing indicates earnings on investments. The ending cash balance is how much you have left over once all your expenses are deducted and your income is added.

3]Complexity:-Tracking all parts of a cash budget can be time-consuming, especially in a large corporation where millions of dollars may change hands, but is not necessarily complicated once the information is available. Often, a simple spreadsheet similar to a check register is all that you and your accountants need to detail financial events. Although the approach to tracking all components of the budget is basic, cash budgets in large organizations often rely on information from different departments to put together the master document. For example, sales managers may be responsible for tracking sales income and expenditures, while advertising agents may have to document the cost of promoting the business. These workers then have to provide the accounting department with their data, and the accountants ultimately have to compile the information to make it meaningful as a "big picture."

4]Changes;- Working with the components of a cash budget is a dynamic task, because the needs of the business can change over time. For example, a business may find that it needs to hire new workers to keep up with product demand. Economic conditions often dictate cash budget decisions and updates.