Budgets Flashcards
(19 cards)
What is the role of the finance department?
The finance department is responsible for managing the financial resources of an organization.
What is a budget?
A budget is a financial plan that outlines expected revenues and expenditures over a specific period.
What are the purposes of a budget?
The purposes of a budget include planning, control, and resource allocation
Limit Overspending
Maximise Profit
Ensure sufficient cash flow/ working capital
What are the benefits of budgets?
Benefits of budgets include:
* Improved financial control
* Enhanced planning
* Resource allocation
* Performance measurement
* Communication tool
What are the limitations of budgets?
Limitations of budgets include:
* Rigidity
* Time-consuming
* Inaccuracy
* Potential for conflict
How can budgets be evaluated for a business?
Budgets can be evaluated based on their effectiveness in achieving financial goals and aligning with business strategy.
Who are the stakeholders affected by budgets?
Stakeholders affected by budgets include:
* Management
* Employees
* Investors
* Creditors
* Customers
True or False: Budgets are only beneficial for large organizations.
False
Fill in the blank: A budget is a _______ that outlines expected revenues and expenditures.
[financial plan]
What are the 4 different types of budgets?
Revenue
Expenditure
Profit
Departmental/ function
What are the roles of a financing department?
Sourcing finance
Analysing performance
Preparing final accounts
Cash flow forecasting
Break even analysis
Budgets
Maintaining accurate records of transactions
What is the budgeting process?
1)Establish aims of the business
2) set overall budget
3) set functional/ departmental budget
4) can be broken down futher by training budget
5) establish procedure for monitoring budget
6) conduct variance analysis
7) use experience/ knowledge
What is Variance l?
A variance is the difference between the actual figure and budgeted figure for revenue and expenditure
What is the difference between favourable and adverse variance?
Favourable is that expenditure is less than expected or revenues are higher than expected
Adverse is expenditure is more or revenues is less than expected
Chain of analysis to overspending
1) Overspending leads to reduced profits
2) Reduced profits leads to less working capital or long term investment
What is zero budgeting?
Managers start with a clean sheet and they have to justify all expenditure made
What are the effect of zero budgeting?
Improves control because senior managers see in more detail where money is spent
Helps with allocation of resources
Limits the tendency for budgets to increase annually
Reduces unnecessary costs- discourages people from spending their budget because they know it will be deducted next time
Motivates managers to look for alternative options
