Accountancy Essay Example | Topics and Well Written Essays - 1750 words

Accountancy - Essay Example Budgets are derived from the long-term strategies of any company or organization. Reames (2010) states that â€Å"its always important to figure out those areas of your budget where you tend to spend exorbitant amounts or unnecessarily and cut those out†. The annual budgetary process is a very lengthy process that takes several weeks in order to develop a valuable plan that is used for the whole year and is not revised until the next year. Peterson and Fabozzi (2002: 245) state that â€Å"Annual budgeting is one of the most important, and sometimes most difficult, parts of financing†. It is really helpful for the companies as it lists all planned expenses and revenues for the current year. Annual budgeting process is not just about the budget; it’s also about the growth of the business and performance improvement. Kirk (n.d.) states that â€Å"forecasting an annual budget for your business helps you determine where your needs are not only for funding, but personnel as well†. The factors which are needed to be taken into consideration while making an effective budget include the number of budget participants, competency levels, interdepartmental dependencies, diversity of skills, and individual roles. To develop an effective annual budget for a company, following steps are of critical importance: 1. Determining the amount of money which the company has made by gross sales in the previous business year, because that money will be used in order to represent the expenses of the company in percentage form. 5. Multiplying upcoming years projected gross sales volume with the percentage for each expense category in order to estimate the expenses that will be encountered by the company in the coming year as a percentage of the company’s gross sales which will be based on the percentages from the previous business year. A budget plan helps in decision making regarding use of money.