Illustrate the Use of Budgets as a Means of Excercising
Illustrate the use of budgets as a means of exercising financial control of a selected company In this task I will be explaining what a budget is, why it used by companies and I will have to show how it helps a company in controlling its finance. A budget is a plan which predicts how much a company makes in revenues and how much it is going to pay in expenses and so predicts a profit or loss. A budget is can be prepared whenever a company wants two and for however long a period of time it wants to prepare it for. Companies and people would budget in order to avoid overspending and even if this does happen as it will predict how much money will be needed then the person/ business can arrange for it by getting an overdraft facility or loan. There are two types of costs, the first is fixed costs which stay the same and the other is variable costs which are always changing. Shareholders and banks may want to see budgets as the shareholders may want to know how well the company is predicted to do and banks may want to see it in order to get a clue on whether the business/ person will be able to pay back the money borrowed. Income | £ | Variable/ Fixed | Salary after tax and insurance | 1 500 | Fixed | Expenses | | | Rent | 250 | Fixed | Gas and council tax | 200 | Variable/ Fixed | Car insurance | 140 | Fixed | Tax on car | 20 | Fixed | Entertainment per month | 100 | Variable | Petrol per month | 150 | Variable | Food per month | 70 | Variable | Season ticket for theatre per annum | 420 | Variable | Credit card repayments monthly | 150 | Variable | Interest on credit card monthly | 50 | Variable (interest rates could rise/ fall) | Clothes per annum | 1,000 | Variable | If buying a house | | | Potential mortgage per month | 450 | | Mortgage deposit | 5000 | | Lawyers’ fees | 1 500 | | | Year 1 | Year 2 | Year 3 | Total | Income | £ | £ | £ | £ | Salary after tax and insurance | 18,000 | 18,000 | 18,000 | 54,000 | | | | | |