Budgeting Flashcards
Budget committee
Process drivers
Rep from each function
Meet regularly
Purposes of budgeting
Planning Control Coordination Communication Motivation Performance evaluation Authorisation
Principal budget factor
Limiting factor
Master budget
Summary of all functional budgets
Normally in p&l format
Budget preparation
1 sales budget
2 production budget (raw materials, labour, factory overhead)
3 cost of goods sold
4 selling and distribution expenses budget and general and admin expenses budget
5 master budget p&l
6 cash budget and capex budget
7 statement of financial position
Cash budget
Cash flow
Cash budget short term deficit
Overdraft
Reduce receivables
Increase payables
Cash budget long term deficit
Raise long term finance i.e. Loan capital or share capital
Cash budget short term surplus
Invest short term
Increase receivables
Pay suppliers early to receive cash discounts
Cash budget long term surplus
Expand or diversify
Replace or update non current assets
Preparing cash budgets
No definitive format but needs to include;
Cash receipts
Cash payments
Net cash flow
Closing balance for each control (budget) period
Allowance must be made for bad and doubtful debts
Rolling budget
Is a budget continuously updated by adding a further accounting period when the earliest one has expired
Periodic budget
Shows costs and revenues for one time period I.e. 1 year
Incremental budgeting
Take last years budget and add a percentage to allow for inflation and other cost increases
Zero budgeting
All costs must be justified by the benefits expected
