Budgeting Flashcards
a plan expressed in quantitative terms, on how to acquire and use the resources of an entity during a certain future period of time.
Budget
the process of creating a formal plan and translating goals into a quantitative format
Budgeting
also called as management or executive committee, is primarily responsible in developing and institutionalizing budgetary systems and processes. It is usually composed of sales manager, production manager, the chief engineer, and the contractor.
Budget Committee
a detailed set of information and guidelines about the budgeting processes.
Budget Manual
the length of time for which a budget is to be prepared and implemented.
Budget Period
it represents the overall plan of the organization for a given budget period. It consists of all the individual budgets for each segment of the organization aggregated or consolidated into one overall budget for the entire firm.
Master Budget
Master budget is composed of:
- Operating Budget
- Financial Budget
- Special Budget
the budgeted income statement for a certain budget period
Operating Budget
the budgeted balance sheet as of the end of a certain period
Financial Budget
it includes performance and capital budgets.
Special Budget
the activities to be incurred are to be prioritized based on its order of relevance in line with a defined goal in the coming period without regard to past experience or present condition.
Zero-based Budgeting
this budgetary approach emphasizes the decentralization of budgetary decision-making. It places local managers and other staff at the center of the budget preparation process, making them responsible for both the preparation and the maintenance of the budget.
Site-based Budgeting
a time framed is maintained (12 mos. or 6 mos.), and when a segment in a budgeted time frame expire and is dropped, a new segment is to be added to maintain the same time frame.
Continuous (Rolling) Budgeting
it is done over the entire life span of a product starting from its period of conception, to infancy, to growth, expansion, up to maturity.
Life-cycle Budgeting
budgets are developed through joint decision-making by top management and operating personnel.
Participatory Budgeting
budgets are prepared by top management with little or no input from operating personnel.
Imposed Budgeting
costs and expenses are not segregated to fixed and variable components and the budgeted costs, without the adjustments to actual capacity, serves as the basis in evaluating actual performance.
Static (fixed) Budgeting
prepared for different level of activity, costs and expenses are segregated to fixed and variable components giving way to the determination of estimated costs based on actual capacity.
Flexible Budgeting
expressed in units of materials, number of employees, or number of man hours or service units rather than in pesos.
Physical Budgeting
identifying responsibility centers where revenues and costs are controlled by a responsible officer.
Responsibility Budgeting
it is the practice of linking the allocation of resources to the production outcomes. The objective is to allocate government resources to those service providers or programs that use them most effectively.
Outcome-focused Budgeting
it is referred to as the “historical” approach because administrators and chief executives often base their expenditure requests on historical expenditures and revenue data. It also offer flexibility in the amount of control established over the use of resources, depending on the level of expenditure detail (e.g., fund, function, and object) incorporated into the document.
Line-item Budgeting
budgeted expenditures are based on a standard cost of inputs multiplied by the number of units of an activity to be provided in that time period. The total budget for an organization is the sum of all the standard unit costs multiplied by the units expected to be provided.
Performance Budgeting
standards are established as a basis of actions and performance; also as a motivational factor.
Standard-setting
concrete plans, targets and activities are develop
Planning
goals and processes should be effectively communicated and coordinated to encourage participation, involvement, commitment, and ownership of the organizational plans.
Communication & Coordination
actions are checked to assess conformity with plans and to make on-line corrections and adjustments.
Monitoring of activities
Results are to be evaluated to determine what happened and make end-of-the-line corrections and adjustments. (ex. Feedback, performance, measurement, and variance analysis)
Evaluation of results
nobody can predict what exactly will happen in the future. Hence, future situations may warrant revision or modification of plans.
Accuracy of estimates
it requires cooperation and participation of all the members. If they lose enthusiasm in carrying out the plans, the entire budgetary system will fail.
Adverse reactions from employees
the development and installation system maybe time consuming.
Amount of work involved in developing a good budget
some managers think that budget restricts their movement and limit their decision-making power, afraid that such budgets maybe used against them if they fail.
Once the budget is developed, it limits flexibility
too costly for some organizations, such that the benefits may be outweighed by its cost.
It is an expensive tool and implementation is not automatic –
members of the organization are forced to plan on how to acquire and use the firm’s scarce resources. This results into a more efficient and effective utilization of such resources.
Compels management planning
actual results of operations are compared with the budgeted figures to monitor the organization’s or the organizational segment’s performance.
Provides a good framework for judging subsequent performance
members of the different organizational segments are enabled to exchange their ideas and objectives thereby giving them an opportunity to communicate with each other.
Promotes communication, coordination, and control
knowing that these budgets are to be used as one of the bases for performance evaluation, the different unit managers will try to operate within this framework and should they be successful the result is attainment of the company’s goal according to plans.
Motivates members of the organization
“A budget tells us what we can’t afford, but it doesn’t keep us from buying it.”
William Feather
a transitional form between traditional line-item and performance approaches
modified program budgeting
