When creating a master budget several items are considered these items include various small budgets. The master budget includes the balance sheet and income and expenditure. It is integration between various budgets ranging from financial budget, material budget, cash budget, and many other budgets that are related to the organization, they are a means of control in the organization. Budgetary control properly applied can be immensely valuable to those in charge of a business. It is, however, not without dangers unless skill and intelligence are exercised both in devising the budgets and in implementing the plans to achieve them.
A business is a dynamic thing. Conditions both inside and outside the firm are constantly changing. A budget is a framework and must not be allowed to hinder, by undue rigidity, the development of the business. New opportunities must be grasped and the budget must not be used as an excuse for rejecting them. On the other hand, a continual and haphazard branching out of a business without regard to any unifying principle can deflect the attention of those employed from the main objectives, and may therefore be dangerous. Budgetary control should ensure that new and unforeseen opportunities are channeled to members of the organization capable of giving them proper consideration. Such opportunities should be neither accepted immediately nor rejected out of hand; the existence of budgets should assist in deciding whether they can be properly accepted in the light of the overall plans for the business.
In preparing the cash budget several assumptions were made and this includes:
- That most goods were going to be sold in cash.
- The cash was being received at a specific period of the business
- Some goods and services were sold on credit
- There was promptness on part of the customers in paying their purchases
When preparing the budget the finance manager will face several issues which need remedial actions. The issue that is faced is the type of errors that are likely to be met by estimating or forecasting group.
Some of the assumptions may be made carelessly which may give the correct answer. For the manager to collect this problem he should carry out a regular budget review to ensure that what is indicated is collected and to the letter.
Works Cited
Beaver W. H (1989) Financial reporting: Accounting revolution, Englewood cleves, prentice hall White G I Sondhi E C & Fried D (1999): The analysis and use of financial statements Wiley.