1. Big Picture Flashcards
What is the purpose of creating a budget
To predict the most likely consequences of a course of action
What roles do budgets have for management?
PRedict finanical consequences
Compare resource requirements with avaliable resources
Allocate constrainted resources to the most profitable uses
Communicate the organization’s financial and operating objectives
Assign responsibility and establish control
Issues with Budgets
Time frames - needs to be udpated regularly to refelct current info.
Performance measures - may impact performance of the company if individual objectives do not align with corporate goals
Budeget manipulation - managers may distort budgeted items to look better in the next year
What are the different budgeting methods
Traditional - organizations get a % across all the line items or on an account basis that they’re told to achieve.
Static - created based on a palnned level of sale, allows for high-level analysis to communicate company’s bduget to stakeholders.
Flexible - to adjust for misconceptions of static budgets, they adjust for activity levels to look at costs (to compare to planned costs)
Priority bdugeting - allocate resources based on their strategic plan.
Top-down and participating budgeting - higher level impose targets, or they get a target and negotaite with managers to achieve something.
Zero-based budgeting - cuts budgetary slack but this is very costly and requires a lot of time
Activity-based budgeting - cost budgets are developed from acitvities
What does pro forma mean
Financial statements that anticipate the results of a planned transaction
