Budgeting Flashcards
What does the financial plan for the future set out?
Buget sets out costs and revenues expected to be incurred or eared
- quantitative plan
What can plans be made out of?
Cashflows
Production lines
Working capital required
market analysis
What are the types of budgets?
Annual budget
Rolling budget
Incremental budgeting
Zero- based budget
What is an annual budget?
Prepared in advance for year
What is a rolling budget?
As each moth ends another is added to the end of budget
- keeps going
What is incremental budgeting?
Uses the previous budget as a base
- takes last performace and change
Positive of incremental budgeting
Quick and easy to do as basis of last year
What is a zero-based budget?
Ignores previous budgets, allocates finding based on neccesities
Positive of zero based budget
Takes into consideration current events
e.g Covid
What is a negative of zero based budget
Takes a lot more time as included growth plans
Functions of a budget
Planning
Co-ordindation
Communication
Control
Motivation
Performance evaulation
Authorisation of expenditure
What are the benefits of a budget?
Promotes forward thinking
Co-ordination
Motivates
Control
Authorisation
What are the stages of a budget
- Define long term objectives
- Form budget commitee
- Identify limiting factors
- Prepare an initial set of budgets
- Prepare budgets
- Review, check
- Prepare master budget
- Communicate to management
- Regular review
What is the starting point of a budget?
- Sales budget (Q, P )
- Production plan (Materials use, purchases, labour) DIRECt
- Overheads
- Capital expenditure
What is included in the master budget
At the end of budget
1. Budget cash flow statement, if there enough cash?
2. Budget income statement
3. Budget balance sheet
