Budgeting

Budgeting is the systematic method of allocating financial, physical, and human resources to achieve an organization’s strategic goals. Budgets are utilized by for-profit and non-profit organizations to monitor the progress towards the goals, assist in the control of spending, and help predict cash flow for the organization.

The central challenge that budget developers encounter is predicting what the future holds for the internal business and external factors. Reading the future is something that can never be done with perfect precision. The fast pace of technological change, the complexities of global competition and world events make developing effective budgets both more difficult and more important.

Important benefits of improving the budgeting process include better companywide understanding of strategic goals, more coordinated support for those goals, and an improved ability to respond quickly to competition. (Gruner & Jahr, 2003 Inc Magazine).

Anyone familiar with Generally Accepted Accounting Principles (GAAP) and practices will find most accounting for nonprofit activity to be very familiar. There are, however, some significant differences, which include:

« Accounting for Contributions

« Capitalizing and Depreciating Assets

« Use of Cash- and Modified Cash-Basis Accounting

« Functional Expense Classification

The act of budgeting resources to meet or beat the goals of an organization is an art form in any type of business. “All business should prepare budgets,” (Hansen and Mowen, p. 282). The advantage to budgeting is that:

1. It forces to plan.

2. It provides information that can be used to improve decision making.

3. It provides a standard for performance evaluation.

4. It improves communication and coordination.

If good budgeting is important for every successful business or organization, can we expect to have industry standard and general practices that are followed in every type of organization? Probable not, but certain standard can be expected, which is the direction of this term paper.

Are there a difference or should there be a difference in the way a for-profit and a not-for-profit conduct their budgeting procedures. In both cases, they have income and expenses, employees and goals and objectives of the organization. The hypothesis is that there is no difference in the budgeting procedures nor is there a need to find a variance in the General Accepted Accounting Principals between the two types of organization.

This paper will examine budgeting procedures for profit and non-profit businesses and compare similarities, and if they exist, differences in accounting practices. This paper will also attempt to review what is Generally Accepted Accounting Procedures (GAAP) for budgeting for any organization to be successful.

Through research, I found the following information from an article from Arthur Anderson accounting firm who has studied successful organizations, both profit and non-profit, and discovered what budgeting practices are used. Important benefits of improving the budgeting process include better companywide understanding of strategic goals, more coordinated support for those goals, and an improved ability to respond quickly to competition. A discussion of best practices used by leading