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Critical Analyzing Topic 1: Static and Flexible Budgeting Flexible budget is a budget which shows how costs are varying with either different output rates or with sales volume levels and the revenue is based on the mentioned varying levels of output. Flexible budget should be used instead of static in order to avoid some difficulties and complexities. The flexible budget can be used: To prepare the future budget just before the fact which is based on the activity levels which are expected To compare actual costs and flexible costs at different activity levels and to provide the basis for evaluating process To stimulate the managers to handle with uncertainty and to allow them to predict the expected outcome for different activities Static budget is a qualified plan which is projecting costs and revenues only for one level of activity. Static budget is usually defined for a twelve-month period. Such budget includes revenues, cash flows, liabilities, assets and expenses. The budget is used to control and to plan activities for the next years.
Static budget focuses mostly on organization and facilities in order to coordinate and to control its activities. Managers face some problems with static budgets, because other activity levels are not accounted into the static budget. The next problem is that static budget is not used to control costs and to measure performance. The reason is that actual activity level may be different from the level that was planned before. Flexible budget is able to forecast the costs and total costs.
Profit companies use mostly flexible budgets. The government should use flexible budget, because it is more easily changed and complemented if needed. The main difference between static budget and flexible budget is that flexible budget uses the actual output level. Topic 2: Small Business and Money Flows A business executive says, The financial area of a balanced scorecard indicates how the organization adds value to shareholders. I am involved with two organizations; a small business that is a partnership with no shareholders, and a church that has no shareholders. A balanced scorecard makes a lot of sense to me, but the financial area is clearly irrelevant for these two organizations.
Every small business is engaged in different activities were money are constantly flowing through the business. It is a matter of fact that money are coming in and going out of the business. It is apparent that money hoes into small business from them main sources and money will ho out for many reasons involving, for example, payments for expenses on the business, for buying or replacing business assets, for living expenses and lending. The money goes in from goods and services selling, from selling business assets, from money contributed to the business activity and money borrowed from a bank. It is important for small business to know where money flows, because the company / firm /organization will know its position and what is going on within the financial sphere of the company like in the church. A small company should take care of money spent in order to survive in the market place.
For example, if not to pay attention on money flows it is possible to see that companys stability is declining and company may face financial crisis or even bankruptcy. It is necessary to support money flows by documents and to record all details in order to avoid problems. The possible ways of control are transaction documentation, wages records, tax invoices, credit card statements and cheque butts. All these records are needed to have clear idea about the money flowing.
Such activity makes it easier to prepare annual income tax and to account business profits; to make sound and clever decisions; to demonstrate stable financial position to banks, creditors and investors in other word a good director should be always aware of what is going on in his company.
Free research essays on topics related to: flexible, small business, balanced scorecard, budget, order to avoid
Research essay sample on Order To Avoid Balanced Scorecard
