Accounting Policies and Procedures Manual: A Blueprint for Running an Effective and Efficient Department, Fifth Edition

Chapter 10. Budgeting Manual^[1]

Introduction

Budgeting is one of the most important activities that an accountant can engage in, for it provides the basis for the orderly management of activities within a company. A properly created budget will funnel funding into those activities that a company has determined to be most essential, as defined in its strategic plan. Furthermore, it provides a bridge between strategy and tactics by itemizing the precise tactical events that will be funded, such as the hiring of personnel or acquisition of equipment in a key department. Once the budget has been approved, it also acts as the primary control point over expenditures, because it should be compared to purchase requisitions before purchases are so the level of allowed funding can be ascertained. In addition, the results of specific departments can be compared to their budgets, which is an excellent tool for determining the performance of department managers. For all of these reasons, a comprehensive knowledge of the budgeting process is crucial for the accountant.

In this chapter, we look at the system of budgets and how they are linked together, review a sample budget, cover the key elements of flex budgeting, address the processes required to construct a budget, and finish with coverage of the control systems that can be used if a budget is available.

System of Interlocking Budgets

A properly designed budget is a complex web of spreadsheets that account for the activities of virtually all ...