Budgets Flashcards
Define; budgeting
Budgeting refers to the process of generating the reports that estimate the financial consequences of future transactions. Through planning ahead allows the business to be prepared and aid in decision making and planing.
What are the two purposes of budgets
Planning, by predicting what will occur the opener can pro are in advance for any problem and take advantage of any opportunities
Decisions making, budgets are used to bench mark for performance to be measured, the owner can then identify areas where decisions will be altered
What is the budgeting process?
budgets should be prepared; actual reports are made; compared against actual reports to allow problems to be identified in variance reports; decisions should be made based on that assessment; and then new budgets should be prepared for the next period.
Why is budgeting a process?
Budgeting is seen as a process as it is the series of actions, where the the estimated figures are gained from previous periods and should therefore be continued on for the next period.
How are budgets different form other reports?
It reports future events not what has already happened
It uses estimates not factual information
Cash budget
An accounting report that estimates future cash payment and receipts, to determine a prediction for the surplus or deficit and therefore estimate the bank balance
Why are consecutive figures used?
Shows the monthly variations and trends from month to month. To give a more accurate detection for problem and allows for planning of when to undertake cash activity.
Define, budgeted income statement
An accounting report which predicts revenues earned and expected expenses, to therefore generate and estimate for the net profit.
Define, variance report
An accounting report that compares the budgeted figures to the actual figures, and highlight the variances, and any problems incurred for corrective action to be undertaken.
Variance
The difference between the budgeted figure and the actual figure
Favourable Variance
Where the cash/profit will be higher than budgeted
Unfavourable Variance
Where the cash/profit will be lower than budgeted
