According to Chapter M-7, “a budget financial plan that managers use to coordinate a business’s activities with its goals and strategies (Miller- Nobles, T., Mattison, B., & Matsumura, E.M., 2020).” Budgets for a firm can serve the same purpose as our personal budgets for our households. We make limits on how much money we want to spend per month based on the amount of money left over after expenses. Honestly, some of my bills, including electric and cell phone data usage have limits placed on them too.
Managers of companies use this same concept to create budgets for the different department and accounts within the firm. Unlike the more relaxed, informal budgets used by individuals, a company will formalize their goals and use this drawn-out goal to regulate revenues and expenses. For example, if a company wanted to buy new equipment or any other type of capital expenditures, that expense would be factored in their plans. The overall purpose for a budget is that “at the end of each period, the current budget numbers and actual performance numbers are compared and adjustments are made if needed (What is budget, 2018).” Based on the comparison of budget to actual figures, the company will be able to make informed decisions to avoid bankruptcy.
Miller- Nobles, T., Mattison, B., & Matsumura, E.M. (2020). Financial and Managerial Accounting 7th ed. Pearson Education, Inc. ISBN# 9780136516255
What is a budget? – definition: Meaning: Example. My Accounting Course. (2018, June 19). Retrieved October 6, 2022, fromÂ https://www.myaccountingcourse.com/accounting-dictionary/budget
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