Lecture 8 Flashcards
What is a budgeting system
A budgeting system is a structured approach to managing and allocating financial resources to meet financial goals
What does a budgeting system provide
It provides a framework for tracking income, expenses, and savings, ensuring that financial goals are achieved while maintaining financial stability
What is the purpose of a budgeting system
Purpose of a budgeting system:
- Financial Control
- Goal Achievement
- Financial Planning
- Decision-Making
- Risk Management
How do budgeting systems help with financial control
Helps track income and expenses to ensure that spending does not exceed available funds
How do budgeting systems help with goal achievement
Supports short-term and long-term financial goals, such as saving for a vacation, paying off debt, or investing for retirement
How do budgeting systems help with financial planning
Facilitates the allocation of resources toward specific priorities and helps plan for future financial needs
How do budgeting systems help with decision making
Provides insights into spending patterns, allowing for informed decisions on adjustments to meet financial goals
How do budgeting systems help with risk management
Identifies areas where expenses can be reduced or where savings can be increased
What is the nature of a budgeting system
Nature of a Budgeting System:
- Systematic
- Flexible
- Continuous Process
- Personalized
How are budgeting systems systematic
Involves categorizing income and expenses, setting targets, and monitoring performance over time
How are budgeting systems flexible
Can be adjusted to reflect changes in income, expenses, or financial priorities
How are budgeting systems a continues process
Requires regular review and updating to ensure it remains aligned with financial objectives
How are budgeting systems personalised
Tailored to individual or organizational needs, reflecting unique income levels, expenses, and financial goals
How does a budgeting system help maintain financial health
budgeting system helps maintain financial health by ensuring that resources are allocated efficiently to meet both immediate and future financial needs
How does budgeting help with planning
Budgeting for Planning:
- Setting Financial Goals
- Resource Allocation
- Forecasting
- Prioritization
How does budgeting help with setting financial goals
Budgets help outline specific financial objectives, such as saving for a major purchase, investment, or reducing debt
How does budgeting help with recourse allocation
Allocates resources to different areas ensuring that funds are appropriately distributed to support business or personal goals
How does budgeting help with forecasting
Helps predict future income and expenses, enabling proactive decision-making and long-term financial planning
How does budgeting help with Prioritization
Assists in identifying which activities or projects are most critical, ensuring that resources are used where they can have the most impact
How does budgeting help with control
Budgeting for Control:
- Monitoring Performance
- Corrective Action
- Resource Management
- Financial Discipline
How does budgeting help with monitoring performance
Tracks actual financial performance against the budgeted figures, identifying discrepancies or variances
What is corrective action
When actual results deviate from the budget, steps can be taken to realign spending, adjust strategies, or allocate resources more efficiently
How can budgeting help with recourse management
Ensures that resources are utilized efficiently and effectively, avoiding overspending or underutilization of funds
How can budgeting help with financial discipline
Establishes a framework for maintaining control over finances by setting limits and boundaries for spending and investments
What is the purpose of operating budget
To forecast and manage day-to-day expenses and revenues over a specific period
What does operating budget include
Includes categories like salaries, materials, utilities, marketing, and other regular operational costs
How is operating budget used
Used to manage short-term financial performance
What is the purpose of capital budget
Focuses on significant investments in assets, equipment, or infrastructure projects that typically have a long-term impact
What does capital budget include
Includes major purchases such as machinery, buildings, or technology upgrades
Where is capital budget used
Common in industries like real estate, manufacturing, or government where large capital expenditures are required
What is the purpose of cash flow budget
Tracks the inflows and outflows of cash within a given period to ensure liquidity
What does cash flow budget focus on
Focuses on cash receipts and payments, helping manage short-term financial health and liquidity
Who is cash flow budget helpful for
Helpful for businesses or individuals who need to manage their cash positions to avoid liquidity shortages
What is the purpose of budget variance budget
Focuses on identifying and managing differences between the planned budget and actual performance
What does budget variance budget compare
Compares actual performance with the budgeted numbers to highlight variances and take corrective action
Where is budget variance budget common
Common in financial reporting and management where ongoing adjustments are necessary
What is a zero-based budget like
Starts from a “zero” base for each budget period, requiring all expenses and revenues to be justified from scratch, with no automatic carryovers
What does zero-based budget focus on justifying
Focuses on justifying each line item, often used in cost-saving or restructuring initiatives
Where is zero-based budgets often used
Often used in organizations looking to reduce costs or optimize spending by re-evaluating all budget items
What is the purpose of the master budget
Integrates multiple budgets into a cohesive financial plan
What s the contents of the master budget
Combines various individual budgets into a single comprehensive financial plan with a focus on coordination and alignment
Where is the master budget typically used
Typically used by large businesses or corporations to streamline planning and management across departments
What is the purpose of an expense budget
Focuses on controlling and managing specific expenses within a defined budgetary period
What does an expense budget typically include
Typically includes areas like travel, entertainment, marketing, or training expenses
How is expense budget used
Used by departments or teams to control spending within specific areas
What is the purpose of profit budget
Focuses on projecting and managing profit by controlling revenues and expenses
What is the contents of profit budget
Combines sales projections, operating expenses, and profit margin expectations
Who is profit budget often used by
Often used by businesses aiming to maximize profitability and improve financial performance
What is the expense or departmental budget purpose
Allocates funds specifically to departments or projects for managing resource allocation and performance monitoring within those areas
What is the expense or departmental budget contents
Focuses on individual departmental expenditures, staffing, and operational needs
What are some benefits of budgets
Here are some key benefits:
- Financial Control
- Goal Achievement
- Improved Financial Planning
- Resource Allocation
What do budgets do for financial control
Provides a clear view of income and expenses, helping prevent overspending and ensuring that spending stays within available resources
What is the impact of budgeting for financial control
Reduces the risk of debt accumulation and financial strain by promoting disciplined financial management
How does budgeting help with goal achievement
Helps set realistic financial goals and outlines the steps needed to reach these objectives
What’s the impact of budgeting for goal achievement
Encourages progress toward long-term and short-term financial aspirations
How does budgeting help with improved financial planning
Facilitates better forecasting of future financial needs, ensuring adequate preparation for expenses
What’s the impact of budgeting for improved financial planning
Enhances decision-making by providing a roadmap for managing finances proactively
How does budgeting help with resource allocation
Ensures that funds are allocated efficiently across different areas
What’s the impact of budgeting for resource allocation
Maximizes productivity and effectiveness by allocating resources where they are most needed
How does operating budget contribute to the master budget
Provides detailed insights into projected revenues and operating expenses that feed into the overall financial picture
How does capital budget contribute to the master budget
Helps integrate capital expenditures into the broader financial strategy by forecasting cash flows and funding sources
How does cash flow budget contribute to the master budget
Ensures that all financial activities maintain adequate cash flow to support ongoing operations and capital investments
How does expense budget contribute to the master budget
Provides a granular view of specific cost areas, ensuring the overall budget reflects detailed departmental needs
How does revenue budget contribute to the master budget
Supplies the necessary revenue figures that balance against expenses in the master budget to achieve profitability targets
What is the final output of the master budget
The master budget becomes the guiding financial document that integrates all smaller budgets into a cohesive financial strategy
