Midterm Exam Flashcards
“The budget should be balanced, the treasury should be revealed, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt.”
Cicero
A plan expressed in quantitative terms on how to acquire, and use the resources of an entity during a certain future period of time
Budget
The process of creating a formal plan and translating goes into a quantitative format
Budgeting
Also, called as management or executive committee, is primarily responsible in developing and institutionalizing budgetary systems and processes. It is usually composed of sales manager, production manager, the chief engineer, and the contractor.
Budget committee
A detailed set of information and guidelines about the budgeting processes
Budget manual
Budget manual includes:
Statements of the budgetary purpose and desired results
A listing of specific budgetary activities to be performed
Calendar of scheduled budgetary activities
Sample budgetary forms
Original, revised and approved budgets
The length of time for which a budget is to be prepared and implemented
Budget period
It represents the overall plan of the organization for a given budget. It consist of all the individual budgets for each segment of the organization, aggregated or consolidated into one overall budget for the entire firm.
Master budget
Master budget is composed of:
Operating budget
Financial budget
Special budget
The budgeted income statement for a certain budget period
Operating budget
The budgeted balance sheet as of the end of a certain period
Financial budget
It includes performance and capital budgets
Special budget
The activities to be incurred are to be prioritized based on its order of relevance in line with a defined goal in the coming period without regard to past experience or present condition.
Zero based budgeting
This budgetary approach emphasizes the decentralization of budgetary decision making. It pleases local managers and other staff at the center of the budget preparation process, making them responsible for both the preparation and the maintenance of the budget.
Site-based budgeting
A time frame is maintained, and when a segment in the budgeted timeframe expire and is dropped, a new segment is to be added to maintain the same timeframe
Continuous (rolling) budgeting
It is done over the entire lifespan of a product starting from its period of conception, to infancy, to growth, expansion up to maturity.
Life-cycle budgeting
Budgets are developed through joint decision making by top management and operating personnel
Participatory budgeting
Budgets are prepared by top management with little or no input from operating personnel
Imposed budgeting
Costs and expenses are not segregated to fixed and variable components in the budgeted costs, without the adjustments to actual capacity, serves as the basis in evaluating actual performance
Static (fixed) budgeting
Prepared for a different level of activity, costs and expenses are segregated to fixed and variable components giving way to the determination of estimated costs based on actual capacity
Flexible budgeting
Expressed in units of materials, number of employees, or number of men hours, or service units, rather than in pesos
Physical budgeting
Identifying responsibility centers where revenues and costs are controlled by a responsible officer
Responsibility budgeting
It is the practice of linking the allocation of resources to the production outcomes. The objective is to allocate government resources to those service providers or programs that use the most effectively.
Outcome-focused budgeting
It is referred to as the historical approach because administrators and chief executives often based their expenditures requests on historical expenditures and revenue data
Line-item budgeting
Budgeted expenditures are based on a standard cost of inputs multiplied by the number of units of an activity to be provided in the time.
Performance budgeting
Basis expenditures solely on programs of work regardless of objects or organizational units
Full program budget
It is considered as a transitional form between traditional line-item and performance approaches
Modified program budgeting
Purposes way we have to budget:
Standard setting
Planning
Communication and coordination
Monitoring of activities
Evaluation of results
Standards are established as a basis of actions and performance — also as a motivational factor
Standard setting
Concrete plans, target, and activities are developed
Planning
Goals and processes should be effectively communicated and coordinated to encourage participation, involvement, commitment, and ownership of the organizational plans
Communication and coordination
Actions are checked to assess conformity with plans, and to make on-line corrections and adjustments
Monitoring of activities
Results are to be evaluated to determine what happened and make end of the line corrections and adjustments
Evaluation of results
Limitations
Accuracy of estimates
Adverse reactions from employees
Amount of work involved in developing a good budget
Once the budget is developed, it limits flexibility
It is an expensive tool and implementation is not automatic
Nobody can predict what exactly will happen in the future. Hence, future situation’s may warrant revision, or modification of plans
Accuracy of estimates
It requires cooperation and participation of all the members. If they lose enthusiasm in carrying out the plans, the entire budgetary system will fail.
Adverse reactions from employees
Benefits
Compels management planning
Provides a good framework for judging subsequent performance
Promotes communication, coordination, and control
Motivates members of the organization
“A budget tells us what we can’t afford, but it doesn’t keep us from buying it.”
William Feather
