Budget Flashcards
1
Q
What is budget?
A
A budget is a financial plan for the future concerning the revenue, costs, and profits of a business.
2
Q
What are the types of budget?
A
- Revenue/income budget: This has to do with the expected revenue of a business within a particular period of time.
- Cost/expenditure budget: This has to do with the expected fixed costs and variable cost of a business within a period of time.
- Profit budget: This is based on combined sales and cost budget.
3
Q
What are the importance of setteng budgets?
A
- To provide direction and coordination
- To control income and expenditure
- To motivate staff
- To maintain a healthy cash flow
- To monitor performance
- To allocate resources
- To turn objectives into practical reality
- To communicate targets
4
Q
Disadvantages of budget
A
5
Q
What are the approaches to budgeting?
A
- Historical budgeting: The process of using last year’s figure as a basis for setting a new budget. However, circumstances may have changed, and it does not encourage efficiency.
- Zero budgeting: A budget that is started from scratch. It is mainly used by new businesses. However, it makes budgeting more complicated and time consuming.
6
Q
What are the internal factors that affect budgeting?
A
- Types of products
- Stage in the product life cycle
- Size of the firm
- Objectives of the business
7
Q
What are the external factors that affect budgeting?
A
- Actions of competitors
- Economic factors like interest rates, taxes, inflation. recession, government policies.
8
Q
What is Variance analysis?
A
It is the difference between the estimated budget and the actual budget. Estimated budget - Actual budget
9
Q
What are the two types of variance analysis?
A
- Positive/Favourable (better than expected)
- Adverse/Unfavourable (worse than expected)
