Budgeting Flashcards
what is cash?
money in the bank or physical cash at one point in time and is available to spend
what is profit?
paper calculation looking at a long period of time (a year) to see what the surplus of revenue over expenditure is
what will profit not include?
income received from sources other than trading
what are some examples of things not included in profit?
Loans
some non-cash expense
what is profitability?
the ability for a business to earn a profit
method used to see a companies profit in relation to business size
measurement of efficiency
what is liquidity?
how easily assets can be converted to cash
what does liquidity measure?
extent to which a person or organisation has cash to meet immediate and short-term obligations
what is working capital?
comparing the ability of current assets to meet current liabilities
Capital used in day to day running of the business
how can working capital be calculated?
current assets – current liabilities
what is a budget?
an agreed plan establishing, in numerical or financial terms to meet anticipated outcomes in alignment with business goals
what will a shorter time frame budget need to be?
will need to be more detailed
what are the accepted time frames for budgets?
short term
medium term
long term
what is the length of a short budget?
up to 12 months
what is the length of a medium term budget?
1-3 years
what is the length of a long term budget?
more than 3 years
what are the aims of setting a budget?
to establish priorities
to prove direction and co-ordination
to assign responsibility
to motivate staff to improve efficiency
to assess forecasting ability
how do budgets establish priorities?
money allocations indicate importance to a particular policy or division
how does producing a budget provide direction and coordination?
ensure spending is geared towards business aims rather than individuals
how do budgets assign responsibility?
budget holder is identifiable and is directly responsible for success or failure
how do budgets help motivate staff?
teams/ individuals get responsibility to meet budgetary targets and gain recognition for successful outcomes
linking rewards to achievement
how do budgets improve efficiency?
monitoring and control
establish standards and investigate failures
use this info for future decisions
working to a limited budget promotes efficient spending
how can budgets assess forecasting ability?
encourages careful evaluation of future
realistic planning
Can be compared against actual figures
what reasons might management use budgets?
planning
communication
decision making
co-ordinating
controlling
how will a manager use a budget for planning?
managements task to plan the future