Budgeting 2
Running Head: Budgeting 1
Title
Name of the student
Institution Affiliation
Course
Budgeting for Financial Control, Management, and Planning
Financial control is the system of tracing organisation resources through proper monitoring and measurement. These controls are there as a way to track reporting accuracy to prevent and eliminate fraud, thereby, protecting the organisation’s resources (CIO Whitepapers Review, n.d.). The financial control purpose of budgeting is used to determine the input required to get a specific amount of output. For example, if an organisation targets output of $10 million in revenues, it has to determine the number of activities or resources needed.
There are three main models of budgeting. The first is incremental which uses the figures of the previous year to either add or subtract a certain percentage to get the budget of the current year. Then there is the activity-based budgeting which is a model that determines the inputs required to achieve the target set by an organisation. Zero-based budgeting is the most common (CFI, n.d.). It starts by assuming the budget of all the departments are zero and that they have to be built from zero. What makes these models similar, however, is that they all force the company to determine how the bills will be paid and where the money to fund the purchase of assets will come from.
Budgeting is used to making decisions which help to plan (Woodruff, 2019). It is also used when allocating resources and evaluating performance and reviewing results. The major budget systems are cash budgets, obligation-based budget, and accrual-based budget. A cash budget is based on cash appropriation; obligation-based is based on both commitment limits and cash, while the accrual-based budget is based on accrual and not limited to commitment or cash. The similarity is that they can use appropriate cash.
I think the best thing that small nonprofit organisations’ can do when it comes to budgeting issues is to outsource budgeting consultants who can help them train their budgeting experts. This will ensure there is competency and continuity when it comes budgeting. In conclusion, financial control is critical when it comes to running, survival, and the success of an organisation. Therefore, the right people should be available to apply the models to ensure the company’s success.
References
CFI. (n.d.). Types of Budgets – The Four Most Common Budgeting Methods. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/accounting/types-of-budgets-budgeting-methods/
CIO Whitepapers Review. (n.d.). What is Financial Control – Definition and Explained? Retrieved from https://whatis.ciowhitepapersreview.com/definition/financial-control/
Woodruff, J. (2019, January 31). Major Objectives of a Budget System. Retrieved from https://smallbusiness.chron.com/major-objectives-budget-system-31094.html