Chapter 6 Budgeting Flashcards
(14 cards)
What is a Budget?
Quantifies revenues and expenses (for a period of time)
Distinct for planning and forecasting
What is the difference between a forecast and a plan in budgeting?
Forecast: prediction of future events for the purpose of budgeting
Plan: define actions to be taken
What are the goals of budgeting?
Define and establish objectives
Identify activities and quantify needs to achieve goals
Describe factors and situations that may affect planned activities
Who initiates the Budget Formation Process?
CFO or comptroller
What is the first step in the Budget Formation Process?
Employees with budgetary responsibilities review last year’s budget and make recommendations for the coming year
What must be itemized in the Budget Formation Process?
Requests for large expenditures
What does the CFO do in the Budget Formation Process?
Reviews all recommendations
What are the distinct time periods involved in budgeting?
Budget time horizon
Business planning horizon
Strategic planning horizon
What is the Incremental approach to budgeting?
Slow cost of line increase or decrease from last year’s budget
Pros: the budget is stable and the change is gradual
Cons: activities expected to continue as the same way before
What is the Program Planning approach to budgeting?
Program planning based approach, prioritizing resources for the fastest growing programs
Pros: enables purposeful resource use
Cons: limits flexibility to shift dollars between programs
What is the Zero Based approach to budgeting?
Every year you start at zero and have to justify every expenditure
Pros: aligns everyone on the same page, eliminates waste
Cons: very time consuming
What is the Modified Zero Based approach to budgeting?
Matches spending levels with services to be performed
Pros: focuses budget setters on variable costs
Cons: favors short term benefits over long term planning
True or False: The Incremental budgeting approach allows for flexibility in shifting funds between programs.
False
Fill in the blank: The _______ approach to budgeting requires justifying all expenses each year.
Zero Based
