A traditional budget is an accounting tool that assists the accountant forecasts and analyzes the business’s revenue and expense for the next year based on the previous budget

A traditional budget is an accounting tool that assists the accountant forecasts and analyzes the business’s revenue and expense for the next year based on the previous budget. The accountant can use the previous budget to prevent overspending and increase more sales. Therefore, a traditional budget helps the business to track earning income, to monitor expense, and to reach the financial goal.
First, the most benefit of the traditional budget to help the firm controls the financial issues. The company often has some troubles to deal with unforeseen costs or hidden expenditures of running the business. However, by using the traditional budget as a template, the manager can predict what caused the company increasing expense. Therefore, the manager can give quick solutions to cut down the overspending in some particular areas. Second, the traditional budget helps the manager to make adjustments in expenses. The traditional budget helps the manager determines any changes in the expenses by comparing the fixed and variable expenses of the monthly or quarterly. Lastly, the traditional budget is significant to the company if they want to borrow a loan from other investors and lenders. By using the traditional budget, the company can display what they plan to do to increase profit and cut back unwanted cost.
On the other hand, the traditional budget will lead to some disadvantages in the business’s goals. The traditional budget consumes too much time and involves too many resources. The manager needs extra hours to analyze and compare the actual result and traditional budget of the previous year. Furthermore, it is not accurate to assist the companies to reach out their goals and process the business strategy. For instance, the manager may focus on cost reduction rather than increase the value of production. The product has a lower quality will lose customers; therefore, it won’t help the business survives in the market when competing with other competitors. In addition, by cutting the extra cost and get a bonus on the salary, some managers will act unprofessionally making the employees feel undervalued. It will create the work unethical and fail to motivate people to work productively.
In conclusion, the traditional budget gives both advantages and disadvantages to the company. The managers and the business owner should learn how to use the traditional budget in a good way that benefits the company in the long-run.

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