In current time period most of the business firms are laying down emphasis on controlling expenses in the business. In the current business report, purpose and objectives in respect to preparation of budget are explained in detail. Along with this, application of the traditional budgeting system is also described briefly. In middle part of the report, alternative budgeting systems are discussed in detail. Apart from this, application of the zero and activity based budgeting in respect to business is discussed briefly. At end of the report, best alternative budgeting method is selected for the business firm.
1 Purpose and objective of preparing a budget
Budget is a statement which is used to prepare a projections about the cash inflow and outflow that may takes place in the business. Firms irrespective of their size prepare a budget. Purpose and objective for preparing a budget are given below.
Control on Expenses: The main aim of preparing a budget is to maintain stiff control on the expenses. The main aim of the business firm is to make expenses within the estimated revenue amount (McLean and Zhao, 2014). So that surplus cash balance can be maintained in the business. In the budget projections about the income and expenses are prepared and expenses are made with in the value that is determined in the budget. By doing so elevation in the expenses is controlled by the business firm which enhance cash balance in the business. Thus, it can be assumed that budget have a significant importance for the business firms.
Employee’s Motivation: Emilia need to prepare a budget for its business because budget give multi-dimensional benefits to it. In the budget projections about sales is prepared. Firm prepare a strategy in order to achieve target sale in the business. Under this targets for each and every employee is determined in respect to area in which he is working for the business firm. Achievement of this targets help business firm in achieving its objectives (Hillier, and et.al., 2014). Tough targets are determined for the employees which motivate them to work hard at the workplace. It can be said that budget help business firm in making best use of the workforce.
Making best Utilization of Funds: Most of business firms irrespective of their size face a lots of fund problems. This is evident from the fact that in case of most firms balance sheet debt is identified with big amount in the liability side. To some extent it is difficult for the business firms especially those are of small size to obtain loan from banks and other financial institutions. By preparing a budget allocation of fund that company received from the bank or any other financial institution is made among different expenses (Cheng, Ioannou and Serafeim., 2014). In this way best use of available fund is made by the business firm and maximum return is obtained on same in terms of profitability. This reflects that there is an importance of the budget for the busi