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Home > Financial Info > Financial Management: Where the Budget is the Key!
Financial Management: Where the Budget is the Key!
Financial management is quite a broad term that covers everything that is intrinsically related with finances. One of the most important concepts and the basic element of the financial cycle is the budget. The budget is the basis of every transaction or process that may take place in finances.
More specifically, a budget is an economic plan that specifies all the economic movements of an entity. Most of the times, it summarizes the figures calculated for annual activities, but the frame time that it covers may vary. Within this financial plan, specialists specify the costs of several activities and justify the way in which the income to pay for those expenses may come. Once a budget proposal is ready, the entities in charge of the company/business/institution must study it and if good, approve it. With this in forehand, every activity that takes place must get attached to what has been previously stated within the budget.
There are two main types of budgets: capital and operating budgets. The capital budget refers to major inversions, big costs that are paid once in order to materialize or develop something. Capital budget must specify the way in which these costs are going to be covered. The operating budget is pertaining to the day-to-day costs and incomes. It is more detailed and deals with the cost of goods or/and services that will provide short-term benefits (that is, in less than one year). Each entity must decide which type of budget will be used, or, if the case, if both types will be implemented. Budgets facilitate the organization and establishment of order within businesses, which leads to the successful outcome of earnings and expenses.
Obviously, the people in charge of preparing budgets must possess qualities of responsibility and reliability. Budgets usually deal with big amounts of money that have to cope with all the expenses and costs required; therefore, corruption within financial management departments must be avoided and punished. Moreover, the further knowledge about requirements to manage finances will better the handling of businesses.
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