Most every firm has a budget. In many cases, however, firms use them inappropriately.
- Most every firm has a budget. In many cases, however, firms use them inappropriately. In extreme cases, the way the budget is used by the firm might actually encourage incorrect decisions. In this discussion, you will get a better feel for how to appropriately use budgets as a guide.
Explain why budgeting is important for a firm. Do you think that a firm’s budget should ever be violated (exceeded)? Explain your rationale.
Post by classmate 1
According to Chapter M-7, “a budget financial plan that managers use to coordinate a business’s activities with its goals and strategies (Miller- Nobles, T., Mattison, B., & Matsumura, E.M., 2020).” Budgets for a firm can serve the same purpose as our personal budgets for our households. We make limits on how much money we want to spend per month based on the amount of money left over after expenses. Honestly, some of my bills, including electric and cell phone data usage have limits placed on them too.
Managers of companies use this same concept to create budgets for the different department and accounts within the firm. Unlike the more relaxed, informal budgets used by individuals, a company will formalize their goals and use this drawn-out goal to regulate revenues and expenses. For example, if a company wanted to buy new equipment or any other type of capital expenditures, that expense would be factored in their plans. The overall purpose for a budget is that “at the end of each period, the current budget numbers and actual performance numbers are compared and adjustments are made if needed (What is budget, 2018).” Based on the comparison of budget to actual figures, the company will be able to make informed decisions to avoid bankruptcy.
References:
Miller- Nobles, T., Mattison, B., & Matsumura, E.M. (2020). Financial and Managerial Accounting 7th ed. Pearson Education, Inc. ISBN# 9780136516255
What is a budget? – definition: Meaning: Example. My Accounting Course. (2018, June 19). Retrieved October 6, 2022, from https://www.myaccountingcourse.com/accounting-dictionary/budget
Post by classmate 2
Budgeting is important to a firm because it shows a firm how the can spend their money, how much money they can earn, and overall how they can be successful. A budget allows a firm get a better understanding of if they have enough money to pay its expenses and also to make sure they are not spending more than they have. I don’t think a firms budget should ever be exceeded because they might not be able to pay it back and get behind with their payments. Therefore in the future their budget could have to be cut somewhat. Going over a budget could have a negative domino effect overtime and this is why for a business it is not a good idea to exceed the budget.
“Budgeting.” Practical Business Skills, https://www.practicalbusinessskills.com/getting-started/financia
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