Question: How are budgets used to help organizations plan future activities?Īnswer: Budgets are established in advance to help organizations communicate their plans to employees and to help employees coordinate activities across the entire organization. Before presenting the detailed schedules of an operating budget, we first discuss how organizations use budgets to plan and control their activities. is a short-term budget (typically one year) that focuses on the daily operations of the organization. An operating budget A short-term budget (typically one year) that focuses on the daily operations of the organization. is a plan of the resources needed to achieve the organization’s goals. A budget A plan of the resources needed to achieve the organization’s goals.
The company wants to increase sales next year, but will have difficulty doing this without some type of plan, often called a budget. How do organizations formally plan for the future?Īnswer: Let’s look at Jerry’s Ice Cream to answer this question. Organizations are no different, except their needs tend to be more involved. If you plan ahead, you may see that working some additional hours, cutting back on entertainment, or a combination of both, allows you to buy the car and avoid these problems. It is not enough to simply state, “I want to buy a new car next year.” If you do not plan ahead for a big expense like this, you may find that you don’t have enough money for a reasonable down payment or that you have very large monthly payments. Assume one of your goals is to purchase a new car. Question: If you have established a personal budget, you know the importance of planning to achieve your goals. Understand how operating budgets are used for planning and control.
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