Budgeting Process: Budgeting can be defined as the process of creating a plan of how one should spend their money. The budgeting process is therefore a procedure by which individuals or organizations create a financial plan and manage it.
(Kemp 2003) This paper will analyze the budgeting process, all the way from how to generate a budget, to the pros and cons of budgeting together with the definition of some terms used in budgeting.
In generating a budget, the first step is gathering of financial statements. These include bank statements, utility bills and basically all information regarding sources of income. The next step is to write down all sources of income.
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They are of four types, annual, budget proposal, financial business reports and quarterly budget reports. (Kemp 2003)
A cost-volume-profit model is a type of cost accounting that is simple and can be used simple instruction and short-run decision making. A CVP model has in it; selling prices per unit, variable costs per unit, volume of activity and total fixed costs. CVP models are used in break-even analysis. (Shim 2005)
Pros of budgeting greatly outweigh the cons. The biggest pro is that an individual of a corporation is able to grip their financial health. Another pro is that it is a tool that enables one reach their goals. The biggest con of having a budget is that one may not spend their money how they would want. One also has to watch where their money goes at all times.
Wildavsky, B. A. (1986). Budgeting: A Comparative Theory Of The Budgeting Process. New Brunswick: Transaction Books.
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