T1 BUDGETS ACF12 PPT Flashcards
What is a master budget?
The overall budget for a business, combining operating, capital expenditure, and finance budgets.
What does the operating budget include?
Sales, other income, cost of sales, and selling/administrative expenses.
What are the three components of the master budget?
Operating, Capital Expenditure, and Finance.
What does the capital expenditure budget include?
A formal list of approved plans for buying and selling non-current assets.
What is the purpose of a cash budget?
To ensure adequate cash reserves are available to meet business needs.
What does the financial component of the master budget show?
Funding needed for planned operations and projected financial position (includes cash budgets, budgeted balance sheet, and capital expenditure budget).
Why is comparing actual outcomes to budgeted forecasts important?
: It helps evaluate planning quality and improve future budgeting decisions.
: Why is cash important to a business?
: It ensures day-to-day operations can continue and helps the business survive financial fluctuations.
What is liquidity?
The ability of a business to meet its short-term debts as they fall due.
What are the features of a budgeted income statement?
contains estimated income and expenses, is prepared on an accrual basis, and is usually for a longer period (quarterly, semi-annual, annual).
What happens if a business lacks cash?
It cannot pay liabilities and may have to close.
What is the purpose of a budgeted income statement?
To evaluate company and departmental performance against budgeted goals.
Who benefits from a budgeted income statement?
Management, investors, and lenders.
What are the key components of a budgeted income statement?
A: Estimated revenue, expenses, profit, gross profit, net sales, operating income, and taxes.
How does cash performance reporting work?
It compares budgeted and actual cash flows to determine cash variances.
How does accrual performance reporting work?
It compares budgeted income earned and expenses incurred with actual income and expenses to determine accrual variances.
What is the purpose of a performance report?
To analyze financial results against budgeted targets and identify variations.
What are the functions of a performance report?
Investigate variations, take corrective actions, reward employees, and adjust future budget expectations.
Give an example of how performance reports are used in a business.
f cash sales decrease by $10,200, the business investigates the cause and takes corrective action.
What are the steps in using performance reports in accounting?
Establish performance benchmarks (budgets).
Assign responsibility to business units (cost/profit/investment centers).
Evaluate performance using performance reports.
Assign rewards to responsible parties.
What is income?
Inflows or savings in outflows that increase assets or reduce liabilities, resulting in increased equity.
What is cash received?
Cash inflows from income transactions (e.g., cash sales) or non-income transactions (e.g., loans, owner contributions).
