Budgeting Flashcards
(15 cards)
Define a budget?
“A plan expressed in monetary terms, shows the income and expenditure of a firm and is a forward looking document”
What are the steps in the long term planning process?
- Mission Statement
- Corporate objectives
- Corporate strategy
- Business plan
What is budgeting?
-Medium term planning identifying the broad directions that top management intend to follow
-Bugets implement the business plan for one year ahead
-Precise and detailed
What is the annual budgeting process?
- Implement medium-term business plan in form of annual budget
- Monitor actual results
- Respond to divergencies from plan
Define forecast
A predicition of what is likely to happen in the future
Budgeting as a cycle of events?
- Formulate the plan (set targets)
- Monitor/measure actual progress
- Compare actual performance to plan
- Take corrective action
- Restatement of, or change plan in sight of step 4.
Purposes of budgeting
-Planning
-Control
-Communication
-Coordination
-Motivation
-Evaluation
Purposes of planning?
-Forces managers to look ahead
-Helps set measurable targets
-Forsee problems
-Give direction for the company to follow
Control
-Measure actual performance
-Compare to budget regularly
-Variance = respond
-Corrective action or revise plans
Co-ordination
-Departments are forced to work towards common objectives rather than departmental goals
Communication
-Budgets set expectations for each department
Motivation
-Final budget is an expression of expectation for each area/manager over the budget period
-These expectations create a challenge which manager are motivated to achieve
Evaluation
-Has the plan been achieved?
-Positive - promotions
-Negative - discipline, training
What is effective budgetary control?
-Budget targets that are challenging yet achievable
-Clear areas of responsibility
-Interactive process
Problems with budgets?
-Lack of flexibility
-Dysfunctional motivational consequences
-Budget slack & time consuming
-Must spend budget
-Budgets cant be to easy to acheive
