Introduction
It is unquestionably true that time and money are a scarce resource for people and organizations. Companies find it increasingly necessary to have efficient and effective use of these resources. Companies, therefore, have to participate in some great deal of planning. However, it becomes inevitable that planning alone is deficient. There is the need to have the control that is crucial in ensuring plans are carried out accordingly. Thus, the budget refers to a tool that is used by management in planning and control of the organization (citation1). The budget is more of a plan that uses the objectives of the company and determines how these available resources are used. The planned outcome of this activity is to analyze why the budgeting process is critical for both the planning and control aspects of an organization.
Many types of budgets are used by different organizations to serve different purposes. Responsibility budgets are created by companies to critique the performance of people, departments as well as the management. Another example is Capital budgets which are designed for evaluating grand projects such as acquiring other equipment and relocation of a business (citation2). The point of focus in this paper is the master budget which comprises of an organized operational plan that aids in the management of future earnings. The master budget is essential as it yields the expected income statement. It is as a result of the financial budget that companies have improved their capacity to synthesize proper management of assets and results in a projected balance sheet.
The purpose of the budgeting process for companies is that it is used for planning for the future of the business because companies are often used to gain a reasonable return on investment. As a result, there is the need to have a strategy that the company can deal with the various uncertainty that they have in future. It becomes clear that the companies that continue their operations without the need for a plan end up dealing with events as they unfold in future. It is because of this that companies have no choice but to design a framework that will be used to counter the circumstances that may take place at any given time.
Companies can, therefore, use the budget to actual comparison to assess the individual performance of staff members. An illustration of this is where the standard variable cost of assembling a PC at IBM is computed in a budget. Then the number can be compared to the actual price of creating personal computers (citation1). This data is essential for managers as they can be able to evaluate the performance of the company with regards to the production of personal computers. Additionally, there are various types of benefits that can be drawn from proper planning and preparation of budgets. The advantage that comes with proper budgeting is that businesses can coordinate their operations. Then the management becomes better prepared for the future and has better coordination. The management becomes cautious and is aware of their roles and their plans. Employees in companies can become careful whenever they are using the resources availed to them. Also, information from the budget can be of use to the company as it can be used to determine the plan as well as necessary changes that should take place.
Budgeting is of significant value to the organization as it enables managers to have a clear vision which may not have been developed previously. Businesses use the planning process to allow numerous departments of the organizations to think hard and commit the plans of the company in writing. Furthermore, adequately created budgets are vital as they enable the management to shift their attention and focus on the results that change from the intended plans. For most of the functions that budgets have, in most cases, the budget is a reflection of the results expected by businesses. Businesses that fail to plan and implement budgets face the problem of meeting a lot of uncertainty as a result of poor management. This problem is disturbing for accountants. If truth be told, the less stable the conditions are, the more the need to have a proper budget in place. Then, it goes without stating that under stable operating conditions, there is a need to have a budget based on the past experiences of business. It is essential to understand that budget of a company involves more than just the previous results. Sufficient budgets also consider the projected income, the plans and the expected activities. The process finds the state of the economy as well as planning for the distant future of the company. Budgets are quantitative plans that are based on past experiences and are adjusted for programs.
Budgeting is crucial for an organization as it is essential in management as well as vital for effective use of available resources to meet the needs, mission, vision and objectives of a particular business. Budgeting is essential to people as it provides a way in which income can be controlled. Budgeting regulates the expenditure of the company (citation3). Budgeting is vital for businesses as it allows for a business with an effective plan of how to spend their resources. At the same time, budgeting is essential as it enables the management to conduct a study on the challenges and problems associated with timely delivery.
Also, budgeting enables people to have a sense of the case and a framework to be followed by the entire organization. Budgeting is critical to the management of the organization as it acts as a guide that the administration can use in matters of future planning and effective implementation of some essential company policies. Budgeting provides the managers with a way in which to control the income levels and the expenditure of the business. Budgeting also provides people with the objectives that an organization can follow when it comes to spending.