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Accounting
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26 Nov 2019

What is the financial budget? Describe the two things that need tobe prepared for the financial budget.

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Patrina Schowalter
Patrina SchowalterLv2
21 Sep 2019
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Related questions

"Using the table below, describe the types of budgets. In your description, include: • The objective of the budget • How the budget assists an organization in managing its financial activities • What types of data need to be included in that specific budget " Type of Budget Description

Cash Flow

Operating

Sales

Static Financial




Type of Budget Description
Cash Flow
Operating
Sales
Static
Financial

I NEED 2 PARAGRAPHS REPLY TO THIS TYPING SO I CAN COPY IT

How are budgets used for performance evaluation?

Financial budgets are normally prepared by the finance oraccounting department of a company. In small businesses, the owneris required to prepare this budget. A performance budget allowsbusinesses to plan for future expenditures. A budget, therefore,determines the amount of capital required to generate a certainlevel of sales. Businesses also adjust future expenses based on thepast budget performance. Through analyzing and reviewing thebudgets, a business will know the amount it has and identifies ifexternal financing is required.

A budget helps businesses track its spending variances. Althoughfinancial budgets are prepared on annual basis, tracking of budgetvariances is done monthly (Vitez, 2018). This tracking enablesbusinesses to understand where the funds were spent and comparewith the number of revenues generated. Anny excessive budgetvariances will require businesses to review their budgets to makesure they are accurately forecasted.

Businesses use performance reports to provide additionalinformation to the managers concerning the budget variances (Vitez,2018). This information may be either financial or non-financialinformation which may impact the budget to exceed its allowablelimits. Resource costs may cause the financial budgets to increase.Inferior resources are examples of non-financial budgets which maymake the budget to increase.

Performance evaluation requires managers to have a benchmark forthe past years will act as a guideline in future. This is normallycommunicated to managers through a budget for their responsibilitycenter. At the end of the accounting year, each center is evaluatedbased on the actual sales generated. This information will onlyappear on the performance evaluation report.

Why are budgets important to a company? Choose your favoritemanufacturing company and describe some of the budgets you thinkwould be useful to that company (operating and financial) and thepurpose for each budget. Lastly, do you think the static orflexible budget (or both) would be most appropriate for the companyyou chose?

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