Mod 4 Flashcards
What is management by exception?
Under this principle, the entrepreneur focuses on improving the activities that show significant differences (or exceptions) between budgeted and actual results.
What is the relationship between credit sales, cash sales and sales revenue?
Sales revenue = credit sales + cash sales
What are the components of a master budget?
- Sales budget
- Purchases budget
- Selling expenses budget
- General and administrative expenses budget
- Cash budget
- Projected income statement
- Projected balance sheet
What is the just-in-time (JIT) inventory system?
Some business use just-in-time (JIT) inventory systems, in which they purchase inventory only when an order has been placed and they need it immediately.
What are some problems that arise in the budgeting process?
- Macroeconomic factors may not have been considered
2. Budgeting is time consuming
What is the sales budget?
It is the budget that accounts for all sales related activities
What are the components of the sales budget?
- Number of units the business expects to sell each month
- Related monthly sales revenue
- Months in which the business expects to collect cash from these sales
What are the components of a purchases budget?
- Shows purchases (in units) required to make expected sales from the sales budget and keep inventory at desired levels
- cost of purchaes
- expected timing and amount of cash payment for these purchasesq
What does a retail business also need to consider in a purchases budget?
- Cost of keeping inventory
- Insurance and taxes on inventory
- Storing and handling inventory
What is the sales expenses budget?
Shows the expenses and related cash payments associated with planned selling activities They help entrepreneurs predict selling expenses at an estimated sales volume
How is a selling expenses budget developed?
By reviewing past selling expenses (if they are available) and then adjusting them for current plans.
What are examples of things that would be in a sales expenses budget?
- Salaries and commissions
- shop rent
- advertising
What is the general and administrative budget?
It shows the expenses and related cash payments associated with expected activities other than selling
How do entrepreneurs prepare a general and administrative expenses budget?
- Reviews past expenses
- identifies them as fixed or variable
- adjusts them for current plans
What is credit?
Credit is a contractual agreement in which a borrower receives something of value immediately and agrees to pay for it later, usually with interest.
