Budgeting Flashcards
What is a budget?
A budget is a financial plan that outlines expected income and expenditures over a period.
What are the key concepts of budgeting?
Income, expenses, savings, surplus, and deficit.
Why is budgeting important?
It helps in financial control, goal setting, debt management, and emergency preparedness.
What are the different types of budgets?
Personal budgets, business budgets, government budgets.
What is the difference between a surplus and a deficit?
A surplus occurs when income exceeds expenses, while a deficit happens when expenses exceed income.
What is a fixed budget?
A budget that remains constant regardless of changes in activity levels or revenue.
What is a flexible budget?
A budget that adjusts based on changes in production levels or revenue.
What are the pros of a fixed budget?
Simplicity, easy monitoring, and financial discipline.
What are the cons of a fixed budget?
Inflexibility and unsuitability for dynamic environments.
What are the pros of a flexible budget?
Accuracy, adaptability, and better decision-making.
What are the cons of a flexible budget?
Complexity and difficulty in setting precise goals.
What is incremental budgeting?
A budgeting method that uses the previous year’s budget as a base and adjusts it incrementally.
What are the pros of incremental budgeting?
Simplicity, efficiency, and financial stability.
What are the cons of incremental budgeting?
Risk of inefficiency, no reevaluation of costs, and encourages budget creep.
What is zero-based budgeting (ZBB)?
A method where the budget starts from zero, and every expense must be justified.
What are the pros of zero-based budgeting?
Cost efficiency, alignment with goals, and better accountability.
What are the cons of zero-based budgeting?
Time-consuming, resource-intensive, and potential short-term focus.
What is activity-based budgeting (ABB)?
A budgeting approach that focuses on the costs associated with specific activities or tasks.
What is performance-based budgeting (PBB)?
A: A method that links the allocation of funds to the achievement of specific performance targets.
What is rolling budgeting?
A continuous budgeting technique where a new budget period is added as the current period ends.
What is top-down budgeting?
Senior management sets overall budget targets and distributes them to departments.
What is bottom-up budgeting?
Departments prepare their own budgets, which are consolidated into the overall company budget.
What is envelope budgeting?
A personal finance technique where money is allocated to specific categories, and no further spending is allowed once the envelope is empty.
What is capital budgeting?
A process used to evaluate long-term investments in assets like machinery, infrastructure, or buildings.
What is budgetary control?
A financial management technique used to monitor actual performance against budgeted figures and take corrective actions.
What are the key components of budgetary control?
Budget preparation, comparison of actual vs. budgeted performance, and corrective actions.
