Budgeting

Budgeting

Christopher L Olsen

BUS630

Managerial Accounting

Dr. Brian Shaw

September 19, 2011

Budgeting

Introduction

Budgeting for any organization can be a time consuming and difficult event. So if making a budget is so time consuming, then why do organizations spend so much time and resources creating a budget? There are several key reasons why organizations spend the amount time going through and creating budgets. Organizations that take the time to create a realistic budget and use it as a tool throughout the year are those companies who can continue to be successful.

Background

To understand how to go about accomplishing a budget, first we must understand what a budget is and what kinds of budgets are available to use. First, the text book Managerial accounting for Managers, describes a budget as “a quantitative plan for acquiring and using resources over a specified time period” (p. 288). Budgets are like road maps that show all the directions of an organization. Organizations use budgets to understand the past performance that in turn will help guide executive teams to plan for the future. For any organization, each item in the budget is a road sign, designed to help demonstrate what actually happened and compare it to the budget plan. Understanding and comparing actual to a budget will help decipher if the organization is on its correct path.

Like I mentioned before, the budget process is extremely time consuming and in some cases a long process. I work for a hospital organization and we are currently going through budget process now. We operate under the assumption of a flexible budget which is defined as “an estimate of what revenues and cost should have been, given the actual level of activity of the period” (Noreen, Brewer, & Garrison, 2011, p. 335). Our budget process starts in July and finishes in December. For the past six years, as the hospital controller, I have orchestrated the budget process for my facility. Our...