Introduction to Functional Budgeting Flashcards
What is a budget?
A plan expressed in financial and/or more general quantitative terms, which extends forward for a period into the future .
What do management do after establishing their strategic objectives?
Assess alternative actions and then formulate detailed plans, taking into account any constraints.
What are 5 benefits of budgets?
- Promote forward-thinking and identification of short-term problems.
- Motivate managers to better performance.
- Provide a basis for a system of control.
- Provide a system of authorisation.
- Help co-ordinate the various sections of the business.
What are 6 problems with budgets?
- They can be demotivational.
- They can be unrealistic.
- There can be budgetary slack.
- The inremental approach can result in an increased budget even when not neccessary.
- If the whole budget is not used then it is often reduced (use it or lose it).
- Setting a budget means there is someone to blame if it is not successful.
What are the 3 stages of the budgeting proceduce?
- Budget period (How long).
- Budget administration (Who is involved).
- Budgeting Process (How much).
What are the 3 sub-categories of the master budget?
- Budgeted profit and loss account.
- Budgeted cash flow statement.
- Budgeted balance sheet.
Draw the interrelationship of budgets.
See picture.
Which budget is prepared most commonly by SMEs (Small-medium enterprises)?
Sales budget.
Which budget is the first to be calculated?
Sales budget.
How is the sales budget calculated?
Estimated by managers.
What is the receivables budget?
Money due from customers.
What is the payables budget?
Money due to suppliers.
What is zero-based budgeting?
An approach that is based on the philosophy that all spending needs to be justified
What are members of staff who have to operate a budget known as?
Budget Holders
