Accounting to budget, Financial Management

Accounting to Budget:

Accounting to budget is a commonly used term to describe how an organisation controls its accounting process.

Typically, an organisation divides its revenue and expenditure into various groups. Such groupings are called the chart of accounts. The chart of accounts are broadly divided into areas of assets, liabilities, equity, revenue (or income), expense and cost of sales.  These broad areas will then be divided further into sub-groupings depending on the type of asset, income, expense etc.

When a particular sale is made, or expense incurred, the transaction will be recorded within one of these accounts.

For example:

The payment of a telephone bill will be recorded within an expense account, most likely divided into an individual account entitled telephone expenses. Professional fees / commission on a sale would be recorded within an income account, most likely divided into in an individual account entitled revenue from sales. When financial reports are prepared, in particular the Profit and Loss statement, the chart of accounts becomes the items within the statement. By establishing a chart of accounts, and recording transactions within those account, an organisation can more accurately track their revenue and expenses.

It is important that when preparing a budget, the budget items reflect the chart of accounts.  In doing so, it is a simple matter of comparing the totals of those accounts with the budget amounts for easy comparison.

Posted Date: 10/1/2012 4:21:03 AM | Location : United States

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