Nature And Purpose Of Budgeting Within An Organization

Introduction This report will explain the nature and purpose of budgeting within an organisation. Furthermore this report will also explain how budgets are monitored and used for control purposes within an organisation. This report also includes two appendices which will be referred to throughout. The main objective of any business in the long term is to make money otherwise known as profit, which is usually achieved by selling goods or services. In order for a business to become profitable, every pound coming in or out of the business needs to be monitored, this process is known as accounting. Accounting is defined as â€Å"The skill or practice of maintaining accounts and preparing reports to aid the financial control and management of†¦show more content†¦In order to ensure that these expenses are paid, budgets are prepared which establish when cash is coming in and out of the business. Research would suggest that â€Å"Profit and cashflow are equally important, only when both are probably managed can the business be successful† (Taylor, 2002, pp. 11-17). Having cash in the bank and making a profit are not the same thing, for example when creating profit and loss statements, these will only assess income and expenses at a certain point, in some cases th ese financial statements are accessing accrued income and expenses meaning that payment in or out of the business has not yet been made. Whereas cash budgets are created to access the physical cash payments in and out of the business at that current time (Bixfillings, 2015). Cash Budgets A budget is defined as an itemised list of income and expenditure over a period of time (The Financial Dictionary, 2015). A cash budget determines when cash is expected in and out allowing FunkyKeys Ltd to plan and monitor cashflow. A cash budget is one of the most important budgets to be prepared in any business. Cash budgets can assist FunkyKeys Ltd to make business critical decisions such as the requirement to apply for an overdraft or a loan with the bank or to offer their customers a settlement discount to encourage earlier payment (Chron Business, 2015). Referring to appendix one (workings) which clearly illustrate that customers are encouraged to pay