Budgeting Flashcards
The purposes of budgeting…
- Motivation
- Authorisation
- Planning
- Performance Evaluation
- Co-ordination
- Control Authorisation
- Communication
A budget…
Is a quantitative expression of a plan for a defined period of time.
There are three levels of planning…
- Strategic
- Budgetary
- Operational
The contents of the Budget Manual includes….
Proformas Organisation Chart Key Assumptions Account Codes Budget Timetable Budget Process Budget Officer
A Master Budget…
Is a summary of all the functional budgets.
A Sales Budget…
Is a budget for future sales expressed in revenue terms.
A Production Budget…
Follows on from the Sales Budget with consideration of inventory policy.
A Cash Budget…
Can give forewarning of potential problems that may arise (shortfall/deficit).
Feedforward Control…
Is the use of forecasts to modify actions so potential threats are avoided and opportunities are exploited.
There are four possible cash positions…
- Short-term Deficit - Bank overdraft, reduce receivables, increase payables.
- Long-term Deficit - Long term loan.
- Short-term Surplus - Invest short-term.
- Long-term Surplus - Expand/diversify operations, update/replace non-current assets.
There are six approached to budgeting…
- Rolling
- Periodic
- Incremental
- Zero-based
- Participative
- Imposed
There are four classifications of responsibility centres…
- Cost centre - The manager is responsible for operating costs.
- Revenue centre - The manager is responsible for revenue.
- Profit centre - The manager is responsible for operating costs, revenues and resulting profits.
- Investment centre - The manager is responsible for profit and return on investment made.
A Fixed Budget…
Remains unchanged regardless of the actual level of activity.
A Flexible Budget…
Shows the allowed expenditure for the actual number fo units produced and sold.
