BUDGETING Flashcards
is 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
USES OF BUDGETING: (6)
✓ It compels periodic planning.
✓ It provides a means of allocating resources efficiently and effectively.
✓ It enhances cooperation, coordination, communication and motivation.
✓ It provides network for performance evaluation.
✓ It satisfies some legal and contractual requirements.
✓ It directs the activities toward the achievement of organizational goals.
LIMITATIONS OF BUDGETING: (5)
✓ Considerable time and costs are required.
✓ Budgets are merely estimates, employing certain amount of judgment, requiring certain modification or revision if necessary.
✓ To be successful, budgetary system requires cooperation of all members of the organization.
✓ Budgets sometimes restrict decision-making process.
✓ The budget program is merely a guide, not a substitute for good management ability.
is a comprehensive budget that consolidates the overall plan of the organization within a budget period
Master Budget
It consists of all the individual budgets for each of the segments of the organization aggregated or consolidated into one overall budget for the entire firm. (Other terms: pro forma budget, planning budget, forecast budget, master profit plan)
Master Budget
Financial Budget (3)
✓ Cash budget
✓ Budgeted balance sheet
✓ Budgeted cash flow statement
Operating Budget
✓ Sales budget
✓ Production budget (Direct materials budget, Direct labor budget, Factory overhead budget, Inventory budget)
✓ Budgeted cost of goods sold
✓ Budgeted operating expense
✓ Budgeted operating income
✓ Budgeted net income
✓ Budgeted income statement
Appropriation-type budget (4)
✓ Advertising budget
✓ Research and development budget
✓ Joint venture budget
✓ Working capital budget
Short-term planning designed to address a specific set of circumstances.
Tactical planning
Long-range planning carried out by top management.
Strategic Planning
A reporting system wherein the planned level of activity is adjusted to the actual
level of activity before the performance report is prepared. It is also known as variable budget or sliding scale budget.
Flexible Budget
A budget prepared for one level of activity within a certain period. It is also known as static budget.
Fixed Budget
A budgeting process wherein the current period’s budget is simply adjusted to allow for changes planned for the coming period.
Incremental Budgeting
A 12-month budget that rolls forward one month while the current month is
being completed (Other terms: perpetual budget, rolling budget)
Continuous Budget
A product’s revenues and expenses are estimated over its entire life cycle (from
research and development to withdrawal of customer support).
Life-Cycle Budget
The process of developing budget estimates by requiring all levels of
management to estimate sales, production, and other operating data as though operations were
being initiated for the first time.
Zero-Based Budget
A process wherein expenditures are budgeted by purpose.
Program Budgeting
A budget plan for annual fixed costs that arises from top management
decisions directly reflecting corporate policy
Discretionary Budget
A budgeting that applies the Activity-Based Costing (ABC) principles
and procedures to budgeting.
Activity-Based Budgeting
A budget that identifies revenues and costs with an individual controlling
their incurrence
Responsibility Budget
A process wherein budgets are prepared by top management with little or
no inputs from operating personnel.
Imposed Budgeting
Assumes the continuous improvement of products and processes; the effects of improvement and the costs of their implementation are estimated.
Kaizen Budgeting
A group of key management persons (usually composed of the sales
manager, production manager, chief engineer, treasurer and controller) responsible for over-all policy
matters relating to the budget program and for coordinating the budget preparation.
Budget Committee
Budgeting process in which information flows top down and bottom up.
Participatory Budgeting
It shows a comparison of the actual and budget performance. The budget
variances are also shown on the report.
Budget Report
This describes how a budget is prepared and includes a planning calendar
distribution for all budget schedules.
Budget Manual
Results when revenues are intentionally underestimated or expenses are
intentionally overestimated during the budgeting process.
Budgetary Slack
BENEFITS OF A WELL-PREPARED BUDGET: (5)
- The budget helps managers align activities and resource allocations with organizational goals.
- The budget can help promote employee participation, cooperation, and departmental
coordination. - The budget enhances conduct of the managerial functions of planning, controlling, problem
solving, and performance evaluation. - The budget can sharpen management’s responsiveness to changes in both external and internal
factors. - The budget is a model of future performance of a business in time to consider alternative
measures.
