The process of projecting your business’s revenue and expenses for the
new coming year based off of the year previous budget is traditional
budgeting. This specific tool in the accounting world gives the business
the opportunity to predict and analyze the earnings and expenses that
were used in the prior year. If you review the budgets used in the past,
you can analyze and predict what to expect. There are several
advantages when using traditional budgeting such as, making better
decisions and obtaining finance in the future. When you review the
budget, and you can review any issues that may have occurred. By
recognizing these past problems you are able to make better decisions
on how to run the business and what to change if needed. When it
comes to financing, lenders and investors would like to review future
financial plans before considering loans or investments. By forecasting
a traditional budget and having this handy, the business will be
prepared to show these projections. The disadvantage of this type of
budgeting is that it can be a little time consuming and there are
potential changes that can happen causing a misrepresentation of what
the goals may have entailed.
If the company wanted to take a different route or approach, they can
consider other types of budgeting like priority-based budgeting, and
zero-based budgeting. When considering the priority-based style of
budgeting this is usually designed to rank high to low bids for resources
otherwise known as decision packages. This means that activities are
reviewed during each budget set and re-evaluated at that time. Zero-
based budgeting has to have expenditures justified and that all costs
are estimated based off of service and output. This allows the proposed
expenditure to be valued consistently and that operations can be
analyzed closely. I think the traditional budgeting is something I would
use and based off of the advantages I would prefer that method.
Danilyn
References
Datar, S. M., & Rajan, M. V. (2018). Horngren's cost accounting: A
managerial emphasis, global edition, 16/E 12. PEARSON EDUCATION
LIMITED. Retrieved from: https://etext-
ise.pearson.com/courses/6926628/products/FETLM2ODV8T/pages
/a5c8cd5f0d78599f237f5e66e4d4aa1926213980f-
id_toc59?locale=&isTpi=Y&key=1374012843135122534252022
Rygelski, M. (2018, January 5). Council Post: Budgets Don’t Work:
Here’s How Businesses Can Do It Differently. Forbes. Retrieved from:
https://www.forbes.com/sites/forbesfinancecouncil/2018/01/05/b
udgets-dont-work-heres-how-businesses-can-do-it-
differently/?sh=2cb42dd846b8
