Budgets - Keywords and Questions Flashcards
Budget?
A plan, quantified in monetary terms, prepared and approved prior to a defined period of time, showing planned income, expenditure and capital.
Budgetary control?
The establishment of budgets relating to the responsibilities of executives to the requirement of a policy, and the continued comparison of actual with budgeted results, to secure by individual action the objective of that policy.
What are the steps of a typical budgeting cycle?
Strategic analysis
Annual budget
Quarterly reforecast
Monthly management reports
Variances calculated
What are the three levels of the performance hierarchy?
Strategic planning
Tactical planning
Operational planning
What is strategic planning?
Long term - looks at the whole organisation and defines resource requirements
What is tactical planning?
Medium term - looks at the department/divisional level and specifies how to use resources
What is operational planning?
Short term - mainly concerned with control through outlining the organisations goals and how they’ll achieve them
What are the two types of budgeting approaches?
Incremental and zero-based
What is incremental budgeting?
The budget for each period id determined with reference to what was spent last period plus allowance for anticipated inflation.
What type of business will incremental budgeting suit?
A stable business where similar cost revenues occur each year
What is zero-based budgeting?
The budget requires each cost element to be specifically justified, as if the activity were being undertaken for the first time.
What type of business will zero-based budgeting suit?
A new business venture or a rapidly changing/competitive environment
What are the suggested benefits of budgeting?
Co-ordination of activities
Responsibility allocations
Utilisation of scarce resources
Motivation of individuals
Planning of business
Evaluation of divisions and individuals
Telling
What is a P&L budget?
A way to undertones the fundamental viability of the organisation i.e. profit
What is a cash budget?
Identify liquidity issues and required funding and/or investment opportunities for the year
