Use of Budget in the Financial Process
Budget is useful in the financial process for establishing an understanding of existing resources and how they can be adequately distributed. While structuring a budget, the needs and resources of an entity are clearly defined and described. Therefore, it acts as an important tool for controlling and evaluating the sources of financial resources and the financial performance of an entity. The financial planning process is essential to expressing the preferences of an individual and is generally considered crucial to ensuring that specific activities are successfully completed (Suurd, 2020). Through the creation of a budget, I can gain the necessary information to assess how they utilize money and the resources that will be further needed. This makes a budget crucial to the financial process as it not only includes the allocation of resources but also defines existing resources.
Influence on Short-Term and Long-Term Decisions
The outcomes or details of a budget can help in making good short-term and long-term decisions. The first thing that a budget fives is a broader perspective of an entity’s financial standing. This provides a business or an individual with an idea of the current financial standing. I can use this information to make both long-term and short-term decisions based on the long-term goals that I have. Through the careful assessment of one’s standing, there is a possession of the tools needed to look into future plans (Suurd, 2020). A budget helps a business to understand the expansion that would be realistic. In other areas, the budget may reveal areas of wasteful spending, which may improve the implementation of long-term projects. The budget also helps businesses to understand the best ways of funding future projects. Based on the established cash flow, a business can easily make decisions on which resources can support future decisions. Hence, by streamlining the resources within a business, a budget makes it easier for long-term and short-term decision making to be made by the management.
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Static and Flexible Expenses
Based on my personal budget, my flexible expenses are utilities, credit card loans, entertainment, and other expenses. These are flexible expenses as they can greatly vary from one month to the other based on my lifestyle decisions (Nguyen, 2018). While I have established a fixed amount in the budget, these line items will change based on changing situations such as medical emergencies or a binge purchase. These expenses can rack up quickly if not adequately monitored. Fixed expenses, on the other hand, are expenses that do not change over the course of a specific timeline (Nguyen, 2018). Based on my budget, my fixed expenses are my car insurance payments, the rent, groceries, and taxes. For the most part, these numbers are expected to be the same after each month. An analysis will have to be done at the end of the month to assess whether there are any variances.
Reflection
As an accountant, this worksheet has been critical in emphasizing why the proper allocation of existing resources in accordance with outlined needs is necessary. Budgets are critical to the financial process as they provide a clear picture of the resources needed and any unnecessary expenses that may exist. Through this exercise, I now know how to use the budget to establish priorities within the financial process. I will also be more aware of how I can use budgets as a guideline to gain direction and coordination of the existing resources. Controlling expenditures within the financial processes will now be easier through the proper application of a budget.
References
Nguyen T. T. N. (2018). Preparation of the budgeting tool and different analyses. Commissioning Company: Lumoa.
Suurd, A. (2020). Why you need to budget: business-budgeting. Farmer’s Weekly , 2020 (20029), 32-34.
