Accounting Best Practices, Fifth Edition

Chapter 5. Budgeting Best Practices

Many companies find the budgeting process to be excruciatingly slow and painful, requiring many months of continual effort before a reasonable budget document is completed. Once it is done, they wonder why the company went to all the effort, since no one makes a strong effort to follow it. This chapter addresses both problems. There are a variety of best practices focusing on creating and implementing a budget model, ranging from defining capacity levels and step-costing points to using activity-based budgeting. These are designed not only to make the budgeting process simpler, but also to result in a better budget that closely reflects management’s expectations regarding operations in the upcoming budget period. In addition, there are several best practices that can improve a company’s usage of the budget, so that it is closely integrated into daily operations.

This chapter begins with an overview of implementation issues for all of the best practices, followed by a discussion of individual best practices, each one being presented in a separate section. The chapter finishes with a review of how these best practices will change a company’s budgeting operations.