An Accounting Budget memo
To: Jim Dixon
Subject: A budget for Trusler Company
I have attached the budget for the Trusler Company to this email, but I also want to discuss quickly on the budgeting, components, and effectiveness. These will enable you to understand what we are doing in your company as far as budgeting is concerned.
Budgeting is a process that involves a quantitative planning that is mainly used as a tool in making decisions regarding activities that will be chosen for the future period (Lazaridis, 2004). For example, in businesses, it will include the estimation of the future sales, preparation of the future cash collection and disbursement. The master budget consists of the following; sales, what the company is selling daily or monthly in figures; the monthly sales are supposed to range from $190,000 to 300,000 depending on the market value, production of the Trusler Company regarding pocket calculator. For example, XQ103 and 104 which should be meet the market target of 2Million per month to satisfy our clients, direct materials, and labor. Manufacturing overhead was representing the plans of the company based on what the managers have in mind, the selling and administrative expense, and the statement of the budgeted income. Capital expenditure budget is expected to be $50,000, the cash budget and finally the budgeted balance sheet which has been prepared in the other document see attached. All of this makes up the master budget that is present in the document (Davila & Foster, 2005).
Budgeting is very essential for the growth of the company since it compels the managers to make good plans that are in harmony with the other departments and the entire company as well. Besides this, it aids the managers to put down in figures what is needed for the company to do to achieve the best performance that is essential for the success of the enterprise. The other significant role of budgeting is to remove the uncertainty that might exist on the lower level of managements due to lack of information on how the company is managed. And perhaps the plans of the company it terms of the expected production rates to ensure that the producers are working towards the budget of the enterprise.
And lastly, budgeting assists the company in the creation of a well-documented plan that can be used to apply for the loan from the banks and also in attracting shareholders to the enterprise. A company without budgeting is like a blind person who doesn’t know where he or she is going and that may be too risky for the company, and that is why in Trusler Company we must update our budget after every financial year. For example, the Edler company which have moved to the extent of reviewing their budget after very six months to keep the managers on track (Lazaridis, 2004).
For an effective budgeting to take place, there must be adequate, planned and reliable accounting systems. This implies to a proper flow of information from the departments for example from the production site to the sales and then to the accounting department for efficient recording. The other essential factor is an effective organization that implies good management starting from the top leaders to the person down there in the cleaning department. The formation of the budget committee will make an efficient budgeting process (Lazaridis, 2004).
Kindly let me know if there is something you need to know
Davila, A., & Foster, G. (2005). Management accounting systems adoption decisions: evidence and performance implications from early-stage/startup companies. The Accounting Review, 80(4), 1039-1068.
Lazaridis, I. T. (2004). Capital budgeting practices: a survey of the firms in Cyprus. Journal of small business management, 42(4), 427-433.