Jan 27, 2023

A budget is an important tool in business as it provides a roadmap to identify priorities and control cost and spending which results to higher profits. Budgets also helps businesses to be prepared on expenses and investments so as not risk being unprepared in the event when the business obligations are due. With a budget, businesses can therefore plan accordingly and ensure that adequate resources are allocated to all the important areas thereby allowing for smooth running of business activities.

Budgets have a great impact in both short term and long term business decisions. The Harvard Business School, & Society for Human Resource Management (U.S.) (2005) contribute that, for  short term decisions, budgeting provides a roadmap in areas such as payment of utilities and repayment of creditors in time so that they can continue supporting the business. As a result, budgeting ensure that the business is liquid enough to pay debts before they are overdue. Long term business decisions are mostly based on business expansion through acquisition of fixed assets or addition of equipment. Here, the budget is a vital tool as it helps to plan future earnings resulting into a projected income statement and help managers plan for the financing of assets and come up with a projected statement of financial position further helping them devise a plan for the action they will take given the foreseeable events that may occur in the future.

From my budget, static expenses include rent, insurance, membership subscription costs and mailbox charges. Flexible expenses include utilities, banking fees, legal fees, taxes, employee expenses, automobile expenses, training, subscription, marketing, stationery and delivery costs as these costs are subject to increase or decrease as a result of the intensity of the activities of the firm unlike the static costs. 

As an accountant, budgeting is very important in costing as it helps to track costs and where possible, suggest possible ways to cut costs in the firm. Additionally, this activity helps accountants to understand which types of costs can be controlled and those which cannot be controlled, which is a guide on which activities of the firm need more attention. Finally, budgeting is critical to accountants as it provides information about the ability of the firm in meeting its short term and long term financial obligations, which can guide the management in decision-making.