This is a methodology or accounting software that is used by companies to manage their assets, liabilities, income and expenses. Many companies are using financial management systems that help in streamlining their cash flows and improving the business performance (Bielefeld & Schneider, 2014).
Effective financial management systems like Sage, QuickBooks and Invent are being adopted by businesses so as to
- Elimination of errors in accounting and remove redundancy in record keeping.
- It provides the much needed flexibility in accounting and expandability in the same
- It ensures that there is compliance with regulations such as tax, deductions , rebates etc. of a company
- Financial management systems streamline collections and invoices.
There are also two types of financial management system which are on-premises financial; system and the cloud financial system. However, there are various advantages of using the cloud system in financial management system. This includes
- It eliminates the costs involved in creation of accounting hardware costs and major headaches associated with IT.
- Some of the software updates will not disrupt the normal operation of the business
- The company staff or directors can get any information at any location at any time if the business is using software.
- There is integration to other applications like the sales force or revenue collection.
For example, QuickBooks and Sage financial management system automates most important duties and processes of an accountant. They reduce a business overreliance on the spreadsheets. They also give clear and greater visibility into the real-time business activities and performances. The business should tailor their systems by configuring the screens, the workflows and the preferences all without scripting or coding (Bielefeld & Schneider, 2014).They increase the ability of management to make faster decisions, increases the business productivity and drive the business to the next level.
Productivity Due to improved Financial Management System
if the business wants to optimize resources to the maximum, whether it's time management or team management, financial management systems have to be used. Personal productivity in the management of resources due to introduction of improved financial management system (Brigham & Ehrhardt, 2017). In this article will know exactly what the productivity and benefits that one can report to your business, as well as the different ways in which we can exploit it.
However, the efficient and quality implementation of all the tasks and tasks required to complete objectives and targets is not exclusively a matter of time and depends on many other factors that are directly related to productivity brought in by adoption of financial management system (Brigham & Houston, n.d.).
Throughout this article we will mainly talk about labor productivity, that is to say, that refers to the increase or decrease in performance depending on the variations of labor, capital, the technique that we apply to perform tasks or produce goods or other factors (AAT qualifications and credit framework (QCF) AQ2013, n.d.).
However, it is necessary to make some points about productivity and other associated terms. The effectiveness is based on achieving the goals established in the company or individually. Efficiency is the achievement of goals with the least amount of resources (Brigham & Houston, n.d.).
In order to achieve good business productivity it is vital to start with a good business management, that is to say, the techniques that apply to the whole of a company with the aim of improving financial management, sustainability, competitiveness and to ensure the viability of the company medium and long term.
Increased productivity also has many benefits for companies, regardless of size or sector of activity:
It supposes a great saving of costs, since it allows us to get rid of those elements unnecessary for the accomplishment of our objectives It assumes a great saving of time, which gives us the possibility to perform a greater number of tasks in a shorter time and, generally, with less effort (COVENEY, 2016). This, in the long run, allows us to reserve that "extra time" for tasks that allow us to grow our business. It provides our business with greater agility and, therefore, flexibility in responding to changes in the demands of our customers or the market in general. Time Management and Productivity Time is one of the key factors when it comes to talk about financial management systems. Time is, in fact, one of the most relevant factors when it comes to efficiency and, hence, productivity, since it is one of the most valuable inputs or resources available to us. Of execution of tasks supposes, as already mentioned, a significant cost savings, greater maneuverability and flexibility, and greater production capacity.
Information Management System
Organizations must have processes and procedures in place to ensure that information is protected and to demonstrate accountability to regulatory agencies and the public.
Designed for the purpose of protecting assets, 2005 specifies requirements for management systems information security (Information Security Management Systems - ISMS). The requirements include the establishment, implementation, operation, monitoring, review, maintenance and improvement of systems documented ISMS within the context of global commercial risks of the organization (AAT qualifications and credit framework (QCF) AQ2013, n.d.). The standard, which stipulates specific requirements to include computer security under the control of the organization's management, can be applied to any business, organization or industry.
What for many is known as Internal Management Control systems and for others simply Internal Control systems is an expression used to specify and detail all those measures that are taken by directors and shareholders of a company to control and direct effectively all the operations that your company plays (Penning, 2012).
Generally, for a particular company it refers to what would be its internal control system. The techniques used to control all those resources and operations can vary from one to another company depending on the nature, complexity, magnitude, as well as the geographic dispersion of all the operations carried out by the company or entity.
It is important to say that all these steps require some kind of concrete action, and the effectiveness of these steps will depend on all the employees who are directly responsible for carrying out a task and explain the reasons for the results obtained (Parker, 2007). The effectiveness of the management system process of the company at all levels of supervision will be the result of the efforts of the employees of the company.
Importance of management accounting in the company
In the present work we intend to address some fundamental concepts, which serve as the basis for the design of Management Control Systems, as well as different approaches used by recognized authors in the subject treated (Parker, 2007). How the three types of costs related to the financial are included in the budget: capital, risk mitigation and strategy execution financials. How improvements to the managerial accounting system not only provide accuracy and visibility to costs, but also allow prediction of expenditure requirements of the necessary resource capacity in the future.The standard, which stipulates specific requirements to include computer security under the control of the organization's management, can be applied to any business, organization or industry (Palepu, Healy & Peek, 2016).
We understand by budget the set of expenses and inputs that a person, entity or government can foresee for a certain period in terms of their finances, the uses and objectives that will be given to each item or expenditure as well as the uses and Long-term forecasts of available funds (O'Herron, 2000).
The idea of ??budget always supposes a forecast of the personal or state finances since to make a budget requires a certain anticipation not only of the expenses that must be realized in the determined time but also of the gains or inflows of capital that can mean period.
In some cases, the budget is an element that can be set individually (for example, when a person analyzes their personal budget). In other cases, the budget implies an agreement between the parties if they are more than one (for example, when two or more people decide what to spend or if a government can use the available resources in such a way) (Nugus, 2009).
As its name implies, the budget is precisely to presume in the matter of finance and economy what will be the activities or movements to be carried out in a future period that is calculated in an approximate way (Nice, 2002). Normally, when we talk about government or state budget, we are talking about budgets that are elaborated taking into account an endless number of variables related to the different economic activities of the region, the projects of works or of new measures of government, with the possible payment of debts or international fees, extra expenses and even the forecast of possible alterations to the original budget based on the results obtained with each of the projections indicated (Nice, 2002).
Objectives of making a budgetroject.General characteristics:
Budgets have the ability to predict future financial statements, based on estimates. According to the data bases, the budget may imply a high degree of uncertainty. The proposal is not accurate information that corresponds faithfully to reality, but should be used as an instrument that contributes to decision making (Lawrence & Klimberg, 2011).
The budget allows controlling the evolution of the company, contrasting the forecast with reality, to be able to analyze the deviations. Budgets allow access to the best option or at least the one that represents the greatest possibility of profitability for the company or investors (Lawrence & Klimberg, 2011). The budget gives the possibility of projecting the expenses that are expected to incur in a certain period of time, as well as the income that will be generated during the course of the project. The budget is very important in that it represents the financial image of the project. The budget largely contributes to the understanding of the project by investors and provides security.Costs as a fundamental factor in the budget in financial management systehe budget should focus on detailing the cost presentation and analysis (Fraser & Ormiston, 2016). For example, in cases where a budget includes a training activity, it should be explained in detail all the expenditures to be taken on the basis of the training, i.e. not only the value but also the cost of the value of time Invested by the people who are to be sent and who must assume the project because it is an operationally non-productive time, in addition to specifying if it requires materials or some value that should be considered for estimating the cost of training (Kemp, n.d.).The presentation of costs in a specific way allows investors and all users of the information contained in the budgets have a clear and comprehensive knowledge that provides reliability, as well as the possibility of looking for alternatives that minimize costs, since in case of Costs are shown as a general amount, denoted as a random calculation.One of the important elements of budgets is the ability to present project information in terms of cost-benefit, from which fundamental variables, including funding, should be assessed (Fraser & Ormiston, 2016). The budget allows investors to assess the possibilities of financing and establish in terms of cost-benefit, the most profitable plan for the project.The budget is important for: Making financial information accessible to all users. For example, unions can access information from the organization, ie union members and all staff in general has the ability to access the budget and know the investment expectations of the organization.Ensure that the planning of activities is feasible and consistent with available resources. Identify the deficit in which greater movement of financial resources is required (Fraser & Ormiston, 2016). Transparently establish the relationship between costs / receipts / invoices with the activities budget, in order to certify the reliability of the work and avoid that the resources are allocated to non-budgeted activities. Provide staff with cost tracking and budget balance. Grant the report to the funders, because the costs are related to the budget and to increase the cost-benefit rat.
A budget is an itemized summary of the expenses and incomes that are likely to occur in a given period. Typically, budgets are created using a spreadsheet, that provides an organized, concrete and easily understood breakdown of how much money a company will be receiving and how much it will be using. A budget is an invaluable tool that enables a company to prioritize spending and managing its money. A budget is necessary for a business because it enables the management to effectively manage money. It also enables a company to allocate appropriate resources to projects (Financial management, 2014). A budget is a tool that is also used to monitor performance of the projects that the company is undertaking in a specific financial year. A budget is also necessary as an tool that the management uses to make and improve decision making. It also enables one to identify problems before they occur, for example, the need to raise cash flow or finance difficulties. They enable a business to plan for the future and also increase staff motivation (Feldstein, 2006).
A budget is an integral part when running a business, they are used in the following way to run a business effectively and efficiently. A budget is used as an action plan for managers and also as a comparison point at the end of the period. In a business, a budget is used to determine how much to spend on the various expenditures of the business. The ability to measure performance of the business is a matter of life and death hence the way a budget is used can really determine if a business will do well or not.
Estimates and allocations of resources are heavily impacted by the analysis of previous years financial data. For example, if the company performed poorly in the last financial year, then the allocations available and projected resource estimates will be reduced because of the fall in profits of the previous year. On the other hand, if the data of the previous financial years shows an improvement in profits then the resource estimates and allocations will be higher because there was more cash. For example, consider historical data from profit and loss account perspective in the last three years, the cost of sales is used to determine whether the gross margin is stable, if it is increasing or decreasing (Feldstein, 2006). When you tie your profit and loss account projection into a balance sheet forecast, then check the working capital and cash balance. These balances are then allocated into the budget (for example, general and administrative expenses) in a percentage form.
One can use a profit and loss template for creating a projection or an estimate of how a business may perform from one year to another. The template is based on our budget and uses the same income and business expense categories. A profit and loss statement summarises the amounts of expenses incurred and the revenues earned by a business entity over a period of time (Dayanada, 2002). The main components of a profit and loss statement is the revenue, cost of goods sold, gross profit, expenses and net profit. The difference between a profit and loss projection and a business budget is subtle but important. After the profit and loss projection then one can change the title of the spreadsheet to budget.
The cash flow shows the outgoings and incomings of cash for an entity during a specified period of time. It is important to understand that the cash of a business is different from its profits. A business may be operating in profit but have a negative cash flow and therefore is not able to pay its debts. The cash flow is divided into three segments namely, investing activities, financing activities and operating activities (Dayanada, 2002). A budget can be made from cash flow forecasts which reflects the actual time that an expenditure and income are likely to occur such as details when money will enter a bank account and when it will leave. Non cash items such as depreciation and amortization are included in a cash flow and hence important in the making of budgets.
Accounts receivables are important this is because the help us know when a business will receive money or payment from the creditors. The analysis of ageing summary is important in budgeting because the budget is prepared by putting into mind when and how much a certain amount of money will be received from the various creditors (Donovan, 2006).
Managing finances of any business is a complex operation. The application of financial statement knowledge in reporting and budgeting has a significant bearing on the success of the business (Donovan, 2006). For the survival of a business, good financial management is essential and an important part of good governance. This involves being in a position to review financial information , implement sound financial practices and understanding the company’s financial obligations and position. Often businesses depending on how big they are appoint an expert in finance with some accounting experience to guide the company in regards to making financial decisions (Feldstein, 2006). Therefore, it is important that supervisors and managers in the organization understand budgets and their reporting requirements.
The five basic skills that managers and supervisors of the organization should have are 1) cash versus accrual accounting 2) should be familiar with basic financial statements in terms of how they are prepared and also reporting 3) budget preparation i.e managers should know how to prepare departmental budgets 4) variance analysis and 5) financial analysis of capital investments and strategic initiatives. One way of ensuring that managers and supervisors in the organization understand the budget and reporting requirements is by involving them in the planning and management of finances. They should know the expenses accrued and revenues received in each department so as to be able to report and understand budgeting.
Budgets are used to identify and track discrepancies between agreed and actual allocations. Explain.
A budget is a plan or forecast in form of a list. These list shows incoming revenue and spending revenue items for a specific period of time (Feldstein, 2006). Thus, the purpose of spending is to show a budget figure for each item. And as time passes actual revenues and spending figures enter the list and are compare with original budget figures. The difference between the baseline or budgeted amount of expenses and the actual amount is known as the variance. Budget variance is favorable when the actual amount budgeted is greater that the budgeted amount. Or when the actual expense amount is less than the amount in the budget. In some rare cases, the difference between budgeted and actual assets and liabilities is known as budget variance. A budget variance is caused by improper budgeting or bad assumptions( for example a company using politics within to derive an unusually easy budget target) which means that the baseline against which the actual results are measured is not reasonable. The organization can track this amounts by using either monthly or quarterly figures or actual expenses or revenues that are calculated using the receipts received during that particular period of time . These amounts are then compared with the amounts in the budget to identify if the variance is positive or negative.
In real business world, small differences between budgeted figures and actual figures are expected and normal. However, a large variance might raise some eyebrows from the relevant officer tracking the difference .
How do budgets contribute to analysis of existing financial management approaches?
There are three main approaches to financial management, these are: First, the traditional view. Second, the modern view and third is the liquidity and profitability. Budgets contribute to the modern view approach of financial management. Financial management in the world has substantially changed in the world and budgets are increasingly being used in the analysis of financial statements(Brigham & Ehrhardt, 2017).. In the modern view approach of financial management the budgets come in handy and are used by the management to analyze and compare with all other financial statements.
Financial management and budgeting are at the core of economic and public sector reform programs in most countries around the world(Brigham & Ehrhardt, 2017).. The growing pressure for an enhanced service delivery and the challenges brought about by fiscal shocks and budgetary crisis in the public sector has budgets have contributed to enhanced analysis of financial management approaches.
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