Theory Of Budgeting Flashcards
What is a budget
A budget is a short-term plan
It is a strategic plan broken down into short term plans
Are budgets forecasts
No
If the business is trying to achieve something what they need
They need to have a strategic plan to achieve it
What are the five steps in creating a strategic plan
- Establish a mission vision and objectives
- undertake a position analysis
- Identify and assess the strategic options
- Select strategic options and formulate plans
- Perform review and control
What types of budget are there
Cash Sales volume and revenue Inventories Production Labour
What does a master budget summarise
It’s summarises contents of individual operating budgets
What types of master budgets are there
Budgeted income statement
Budgeted statement of financial position
Cash budget
What limiting factors are they for budgets
- Sales demand
- Production capacity
- Skilled labour
- Materials
- Funds
What’s should budgets do in terms of limiting factors
They should identify them early and prepared budgets taking limiting factors into account
What are the uses of budgets
Planning co - ordination motivation control and authorisation
What is a management responsibility
Planning and budgeting
What can accountants provide
Relevant information
What does budgeting encourage
Forwardthinking
What Does planning involve
Considering business aims and howthey will be achieved
What does coordination avoid
Duplication of effort and conflicting goals
What does coordination encourage
Encourages communication across different departments and division
What can motivate staff
Communication of budgets and an agreed target
Why should targets be in order to be motivating
Demanding yet achievable
What are three criticisms of budgeting
Budgetsis based around departments rather than considering business as a whole
Budgetary slack may be built-in
If targets Are imposed by management and. Hard to achieve then there may be a negative effect on motivation
What are another three criticisms of budgeting
It’s not always easy to measure success
May be inflexible
Departments may feel obliged to spend the budget cost protected
