Medical Finance Essays Example
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Top-down budgeting approach or the bottom-up method
There are two main approaches to designing a budgeting proposal – a top-down approach and a bottom-up method. The top-down approach is where the total budget is set on the top and then is broken down into the components within the budget. On the other hand, the bottom-up approach is where the plan of the budget is decided, things are scheduled, and then the total budget is designed. The top-down budgeting approach is better because the management decides the budget at the initial level and then the tasks are scheduled accordingly, and the budget allocation is done likewise. Along with this, the business accounting practices can be easily streamlined through the top-down approach and also ensures that an organization is able to maintain its financial path and decisions (Darren, 2014).
Steps in the operating budget process
There are five main steps involved in developing an operating budget:
Flow of information should be determined: The relevant data is collected in order to compile the budget. This process is important because the top management is able to streamline the tasks and priorities the important concerns along with assigning tasks to the individual departments to determine information on their own as well (Lie, 2010).
Measurement decision: It is important to determine that whether the operating budget process will be decided based on the regions of operations or based on products or services provided. This phase is important because it helps identify the main area that requires attention.
Collection of historical data: The historical data and information are collected from the financial data of the company along with the financial ratios of the company. This is important because it helps to provide first-hand data and real-time information in order to develop an operating budget (Lie, 2010).
Projections are made: This involves making projects for the upcoming year, or it can be said the future forecasts of the financial. This is important because it helps the company to establish the benchmarks that it has to achieve throughout the year.
Determining the break-even point: This phase is important because the organization is able to identify the point where it will make profit neither loss and at this point the investment is safe (Lie, 2010).
Darren W. (2014) Top-down or Bottom-up Budgeting – Which Approach is Best Trinity P3 http://www.trinityp3.com/2014/02/top-down-or-bottom-up-budgeting/
Lie D. (2010) Essential Five Steps of Budgeting Process Accounting Financial and Tax http://accounting-financial-tax.com/2009/02/essential-five-steps-on-budgeting-process/
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