2.2.4 Budgets Flashcards
What is a budget?
A plan of income and expenses expected in a time period
What are the 6 key purposes of setting budgets?
-Control and monitoring
-Planning
-Co-ordination
-Communication
-Efficiency
-Motivation
What is Control and monitoring?
and an advantage
Provides a point that performance can be measured against
-can monitor performance
What is coordination?
and whats an advantage?
alignment of goals throughout a business
-Coordinate expenditure (spending)
What is efficiency?
and what’s an advantage?
The ability to achieve a goal with little waste
-Cost control
What are historical figures?
Previous data gathered in the past that is used to prepare budgets
What are zero based budgets?
Setting budgets at £0 to force managers to justify every £ they say they need
What is the strength of zero based budgets?
Encourages regular evaluation of cost to minimize unnecessary purchases
What is variance analysis?
The difference between the budget and actual figures
What is a favorable analysis?
Where the actual figures are better than the budgeted
What is adverse analysis?
Where the actual figures are worse than the budgeted
What are the 2 difficulties in budgeting?
-Inaccurate data can lead to inaccurate budget
-Doesnt allow for unexpected circumstances
Why is planning an advantage?
It helps you forecast future steps
Why is communication an advantage?
provides clarity
