Theoretical foundations of budgeting and budgeting

Budgeting as part of the business planning process and specifically as the form that annual company planning takes is of great importance to business performance.

In addition, budgeting, understood as part of the company's annual planning, is the document where the necessary resources are quantified and guaranteed to achieve the objectives and strategies of the company's longest-term projection (strategic planning).

Thus, the preparation of the company's budget in its different sections allows quantifying the objectives and goals of the company's productive, economic and financial activity for the planned year; which is very useful for the direction and administration of business activity; and its breakdown into shorter periods of time, which contributes to the control and taking of actions for corrections in the event of deviations from those planned.

Introduction

Although it has always been a need and concern of business management, it is from the second half of the 20th century that planning has undergone a strong evolution to become joint elements with the organization in the implementation of business strategy. Thus, the strategic objectives and business strategies need to be specified in current plans, where the tasks and resources necessary for their execution and the fulfillment of the goals are quantified.

This annual planning of the company, even with a shorter planning horizon, where the productive, economic and financial activity of the company for the planned period is quantified, is identified as budgeting. Thus, this quantitative action plan, which covers all phases of operations and financing, constitutes an important document where corporate planning takes shape in greater detail to support the administration and control of the organization's economic activity.

1 - Concept, objectives and tasks of budgeting

1.1 Concept of budget

The specialized literature includes several definitions on budget, raised by different authors, in which common elements can be seen. Among these definitions, the following stand out:

A budget is a trick that allows management to plan and control a company's activities so that its profit and service goals can be realized. (LP Alford, John R. Bangs and George R. Hagemann, Production Manual) The budget is a quantitative and auxiliary action plan for administration and control and covers all phases of operations (sales, production, distribution, financing). (Charles T. Horgren, Cost Accounting in Business Management) A budget is primarily the outline of a projected plan of action for a company, for a defined period. (Theodore Lang, Cost Accountant Manual) A budget is a comprehensive financial plan that anticipates the expected route to execute the financial and operational goals of an organization. (Walter B.Meigs, Robert F. Meigs and Wai P. Lam, Accounting de Basis for Business Decisions).The budget is the report prepared before the beginning of the economic period and detailing the plans by the amount of sales and the level of anticipated costs for all sections of the company. (Shane Moriarity and Carl P. Allen, Cost Accounting) The budget is a carefully prepared estimate of future business conditions. (John JW Neuner, Cost Accounting, Principles, and Practice).Cost Accounting).The budget is a carefully prepared estimate of future business conditions. (John JW Neuner, Cost Accounting, Principles, and Practice).Cost Accounting).The budget is a carefully prepared estimate of future business conditions. (John JW Neuner, Cost Accounting, Principles, and Practice).

Then, the company's budget is the document where the actions to be developed are quantified to fulfill the objectives of the planned period and through which responsibilities are assigned and control of the execution of the actions.

1.2 Budgeting objectives

Budgeting in the company pursues specific objectives of great significance in the projection of business performance, which can be grouped as follows:

Plan and predict. Determine the rules or policies of action, the detailed planning of future action and the preparation of the best possible estimates in the face of external influences on the organization. Coordinate. Ensure that the entity will be operated as a unified set and not simply as a group of separate organizational units. Control the execution of actions based on the allocation of responsibilities and the measurement of results, in order to achieve the projected goals.

1.3 Tasks of budgeting

In budgeting, as part of the economic planning process in the company, to fulfill its objectives, a series of tasks are carried out, identified with the preparation of the budget, its preparation and subsequent administration. Among the budgeting tasks we have the following:

Tasks related to the preparation of budgets: Definition of the company's budget committee, preparation and publication of the budget manual, determination of the budgeting period and others. Tasks related to the preparation of the budget in its different components: Define the starting concept of the budget and the elaboration of each one of them: sales budget, production, material requirements, labor, costs, financial, etc. Tasks related to budget administration: Control of budget execution, its rectification when are necessary and the projection of actions for compliance.

2 - Importance, advantages and limitations of budgeting

2.1 Importance of budgeting

Budgeting as part of the business planning process and specifically as the form that annual company planning takes is of great importance to business performance.

But also budgeting, understood as part of the company's annual planning, is the document where the necessary resources are quantified and guaranteed to achieve the objectives and strategies of the company's longest-term projection (strategic planning).

Remember that the strategic planning of the company, such as longer-term planning, is specified in the annual, quarterly, monthly budgets, etc., so this planning perspective of the company where the most important objectives and strategies for the organization, which requires its specification and quantification in shorter periods of time, where the necessary resources to achieve them are guaranteed, finds in budgets an excellent option.

2.2 Advantages of budgeting

Budgeting then has a number of advantages to business management, in that a well-designed and executed budget system provides a discipline that places annual business planning at the forefront as a primary responsibility of the various subdivisions of the company. In detail the advantages of budgeting are:

It shows in advance the goals to be achieved by the entity, associated with the productive, expense, financial results: predicted financial statements, results, situation and changes in the Financial Position. It coordinates the activities of the company and encourages the collaboration of all.It facilitates control through the delegation of authority and the assignment of responsibilities. It allows to verify the results obtained on the fly, warning in advance the deviations from the proposed objective and taking actions for its correction. It shows in advance the possible successes and failures of the organization.

2.3 Budget limitations

Budgeting, despite its importance and advantages for business performance, as a projection document and quantification of the company's productive, economic and financial actions to fulfill its goals, has its limitations and requirements. The main limitations and requirements of budgeting in the company can be grouped as follows:

The preparation of the budget is based on forecasts of future conditions, on estimated data based on the judgment of managers and specialists when interpreting the available information. Therefore the success of a budget depends on the validity of the available information and the intelligence and skill of managers and specialists in planning. The operations of the organization may depend on factors that make it difficult to forecast and plan a budget, for example: season, special requests or some other similar factor; And since budgeting typically spans months and even the year, companies whose operations depend on uncertain factors have to be guided by the principle of flexibility when making a budget. Once the budget has been approved,it has to be managed and run properly for it to be successful. The budget cannot work automatically and much less replace the administration. It takes a reasonable time to prepare and put into practice a budget, it is often a long time for a company to implement a budget system, instruct its personal and make it work properly.

3- Budgeting requirements and relationship with accounting and statistics

3.1 Budgeting requirements

For the success in the preparation of a budgeting system and above all for its implementation and proper functioning, a series of aspects must be present which are called budgeting requirements, among which the following should be mentioned:

A responsible business organization in which authority and responsibility are defined and developed. Well-defined business standards. Adequate provision of relevant information and data to prepare budget estimates. A defined plan for budget management after have established A well-thought-out and comprehensive general accounting system organized to provide basic information and to prepare comparisons of results from one economic period to another An appropriate cost system controlled by the general ledgers of accounting classification of the general ledger accounts and of the major cost and auxiliary accounts that will be used to classify the budget estimates. Permanent inventory record of raw materials and materials,finished and in-process production and machinery and facilities. A schedule of weekly or monthly general reports and departmental expenses and monthly financial statements.

3.2 Budgeting - accounting - statistics relationship.

As we have seen among the requirements and requirements of budgeting, it is especially important to have a good database and information regarding the performance of the economy in previous periods, information provided by the accounting and statistical system of the company.

On the other hand, when projecting the figures on production, costs and other indicators of the economic management of the company, the forecast provides the measures for comparisons and accounting and statistical analyzes.

Thus budgeting uses accounting and statistics based on projections for the future, since it means careful planning in advance of all the functions of a company.

Conclusions

The preparation of the budget as part of the business planning process in its different sections allows quantifying the objectives and goals of the company's productive, economic and financial activity for the planned year.The budget is a document that is very useful for the direction and administration of business activity; and its breakdown into shorter periods of time, which contributes to the control and taking of actions for corrections in the event of deviations from what is planned.

Bibliography

Guillespie, Cecil. Standard Costs and Marginal Accounting / Cecil Guillespie.– Havana: Cuban Book Institute, 1971. - 388 p. Horngren, Charles T. Cost Accounting in Business Management / Charles T. Horngren. – Cuba: Revolutionary Edition. Book Institute, 1971.– 916 p. Lang, Theodore. Cost Accountant Manual / Theodore Lang.– Mexico: Hispanic American Editorial Typographical Union (UTEHA), 1958. – 1558 p.Neuner, John JW Cost Accounting, Principles and Practice / John JW Neuner. – Mexico: Hispanic Editorial Typographical Union Americana (UTEHA), 1973.– 959 p.