Assignment task:
Budgets help business leaders plan by projecting revenues, costs, or both for a specific time period. Budgets are expressed through financial statements that typically start at the department level. Business leaders analyze budgets to determine when the business may experience a need for further financing to complete day-to-day activities and to make investments.
Different budgets in a business include the following:
A cash budget estimates cash receipts and expenditures over a specific time period. Budget managers combine department budgets to make a company-wide cash budget. A cash budget focuses on the timing that cash will flow into and out of a business. These budgets emphasize short-term financing needs.
A capital budget estimates long-term financing needs and considers expenses such as new product development, expansion of buildings, replacement of obsolete equipment, and mergers and acquisitions. The capital budget considers major assets and long-term financing needs for these assets by accepting or rejecting capital budget proposals.
A comparison budget uses interim budgets that are prepared weekly, monthly, or quarterly to prevent future financial problems and monitor financial performance. These budgets point out areas in business practices that need careful planning and further investigation.
Budgets allow business leaders to determine the financial needs of a business and to obtain funds for future business activities. Cash budgets not only allow business leaders to know when they may need to find short-term financing in terms of loans to help cover expenses but also forecast when those expenses may be paid back. Capital budgets allow business leaders to consider opportunities for investments in assets or new projects that are expected to provide benefits that will last longer than one year.
Imagine that you have started a new job in business-to-business sales after graduation. After a few years of successful work and closing several key accounts, you have been asked to join a committee that will review the department's financial planning process and report important information for the company-wide budget. To introduce you to budgeting, the committee leader talked with your team about the budgeting process and reviewed this month's department operating budget, or the amount of money needed to keep your department running. You were surprised by the costs of the department, but excited about the income your department brings into the company. The committee will vote on the first type of budget you will all review for the upcoming meeting. Discuss which type of budget would you be most interested in reviewing and why. Explain what would you do differently.