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QUESTION:
Budgets
are plans as well as control. Discuss this statement with regards to sales and
cash budgets for small business:
ANSWER:
A
budget is a quantitative express of a plan of action in advance of the period
of which it relates. It may include
planned sales volumes, revenues, resource quantities, cost and expenses,
assets, liabilities and cash flows.
Budget
as a tool for planning and control:
Budgeting is about making plans for the future implementing those plans
and monitoring activities to see whether this conform to the plan.
The
process of comparing actual results with planned results and reporting on the
variation which is the principle of budgetary control sets a control framework which
helps expenditure to be kept within agreed limits. Deviations are noted so that
corrective action can be taken.
The
control functions of budget provide for checks and balances, record keeping,
and operations, regulations in effect and expected results in view.
SALES BUDGETS:
This
is the estimated volume of sales to be made during a projected period. Estimates
must be made in terms of both quantities and monetary amounts and should be reasonably
anticipated in view of all conditions, including both internal and external
factors which may affect the business during the projected period.
CASH BUDGET
This
budget takes account of all projected receipts and disbursements during a
future period and shows the estimated closing cash balance at the end of a
budget period. It can be prepared on
weekly, monthly, quarterly or annual basis. It is very helpful in cash management
and in making estimate as to how much to be borrowed from outside sources in
order to meet various demand.
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