5 - Budgets Flashcards
(15 cards)
What Are Budgets?
Forecasts future earnings and future spending.
What Are All The Types Of Budgets?
(3 Points)
~ Income.
~ Expenditure.
~ Profit.
What Are Income Budgets?
Forecast the amount of money that will come in as revenue.
What Are Expenditure Budgets?
Predict what the businesses total costs will be for the year.
What Are Profit Budgets?
Uses the income budget - expenditure budget, to calculate the expected profit or loss.
How Does Budgeting Affect The Business?
(3 Points)
~ Requires research and negotiation.
~ Used as a measure of performance.
~ Need to be achievable.
What Are Advantages Of Setting Budgets?
(3 Points)
~ Help achieves targets.
~ Gives spending guidance and discipline.
~ Helps attract potential investors.
What Are Disadvantages In Setting Budgets?
(3 Points)
~ Budget setters may lack knowledge and expertise.
~ Time consuming and costly.
~ Inflation can cause the budget to be inaccurate.
What Is Variance Analysis?
Spotting variances and figuring out why they have happened.
What Is A Variance?
Difference between actual figures and budgeted figures.
What Can Variances Be?
(2 Points)
~ Adverse.
~ Favourable.
What Is An Adverse Variance?
(4 Points)
~ Bad for the business.
~ Expenditure is higher than budget.
~ Income is lower than budget.
~ Profit is lower than budget.
What Is A Favourable Variance?
(4 Points)
~ Good for the business.
~ Expenditure is lower than the budget.
~ Income is higher than the budget.
~ Profit is higher than the budget.
What Are The Possible Causes Of Variances?
(2 Points)
~ Internal factors.
~ External factors.
What Does A Business Need To Do When They Find Their Variances?
(3 Points)
~ React.
~ Informs decision making.
~ Need to consider the root cause and how to improve it.
