Budgeting Pt. 2 Flashcards
What are cash budgets?
they represent detailed projections of cash receipts and disbursements; the cash budget is derived from other budgets based on cash collection and disbursement assumptions; they are generally divided into 3 major sections: cash available, cash disbursements, and financing
cash available = cash balances (cash on hand) and cash collections (cash received from sales and loan proceeds)
cash disbursements = purchases (amount expected to be paid) and operating expenses (amount provided for operating expenses)
financing = considers the manner in which operating (line of credit) financing will be used to maintain minimum cash balances or the manner in which excess or idle cash will be invested to ensure liquidity and adequate returns
What are pro forma financial statements?
they leverage hypothetical data or assumptions about future values to project performance over a period that hasn’t yet occurred
What are capital budgets?
they identify and allow management to evaluate the capital additions of the organization, often over a multiyear period; financing is a significant component of the capital purchases budget; capital budgets detail the planned expenditures for capital items and are highly dependent on the availability of cash or credit, and they generally involve long-term commitments by the organization
What is flexible budgeting?
a financial plan prepared in a manner that allows for adjustments for changes in production or sales and accurately reflects expected costs for the adjusted output; it is a budget that is adjusted for changes in sales or production volume
it can display different volume levels within the relevant range to pinpoint areas in which efficiencies have been achieved or waste has occurred
they are highly dependent on the accurate identification of fixed and variable costs and the determination of the relevant range
