3.5.2 - Analysing Financial Performance - Budgeting Flashcards
What is a budget?
A number of financial targets for the future incomes and expenditures over a certain time period.
What is an expenditure budget?
A fixed sum of money to be spent in a given time period by a department or business.
What is a budget holder?
A person who is accountable for seeing that a budget is kept to.
What is an income budget?
The sales revenue target for a department or the whole business.
What is a delegated budget?
Giving some control in the setting and spending of budgets to departments or individuals.
What is a profit budget?
The target profit (the combined expenditure and income budgets) for the business over a given time period.
What exactly is meant by monitoring budgets?
Keeping check on progress towards achieving targets during the budget period.
Why might a business want to budget for the next financial year?
- To prepare for emergencies
- To be able to pay off debts
- To attract investors/shareholders
- To set sales goals
What are the three different types of budgets?
- Income budget
- Expenditure budget
- Profit budget
What is a benefit of an expenditure budget?
These budgets set spending limits to prevent departments from overspending.
What is a benefit of an income budget?
To motivate employees to increase their labour productivity to achieve a certain sales revenue.
What is two benefits of a delegated budget?
- These budgets give employees some financial responsibility and therefore empowers them
- A managers performance can be measured by comparing targets with actual results
What are the two benefits of profit budgets (difference between the income and expenditure budget)?
- They provide clear goals which motivate employees to increase their labour productivity.
- They allow performance to be monitored against actual profits made.
