Exam 3 Flashcards
(51 cards)
Expressing business plans in financial terms. Coordinate these plans with all areas of business.
Budgeting
Combining numerous specific budgets prepared by various departments. Describes short-term objectives such as sales targets, production goals, and financial plans. Covers one year but is usually broken down by quarters.
Master budget
Strategic planning, capital budgeting, and operations budgeting.
Three levels of planning for business activity
Involves making long-term decisions. Examples: products to develop or discontinue.
Strategic planning
Involves decisions such as whether to buy or lease equipment.
Capital budgeting
Short-term plans.
Operations budgeting
Planning, coordination, performance measurement, and corrective action.
Advantages of budgeting
Managers think ahead about how they will direct operations. The budget formalizes and documents managerial plans and clearly communicates objectives to both superiors and subordinates.
Planning
The budgeting process forces coordination among departments to promote decisions in the best interest of the company as a whole. For example, a purchasing agent may order large quantities or raw materials to obtain a discount. This can cause a storage problem for the inventory supervisor.
Coordination
Budgets are specific, quantitative representations of management’s objectives. Comparing actual results to budget expectations provides a way to evaluate performance.
Performace measurement
Budgeting provides advance notice of potential shortages, bottlenecks, or other weaknesses in operating plans.
Corrective action
Group of detailed budgets and schedules representing the company’s operating and financial plans for a future accounting period. Includes operating budgets, capital budgets, and pro forma financial statements.
Master budget
Preparing the master budget begins with the sales forecast. The accuracy of the sales forecast is critical because all other budgets are derived from this budget. Normally, the marketing department coordinates the development of the sales forecast.
Sales budget
The schedule is made from projected sales. This schedule is used to prepare the cash budget.
Schedule of cash receipts
Shows the amount of inventory that must be purchased each month to satisfy the demand projected in the sales budget.
Inventory purchases budget
Equation:
the amount of inventory a company plans to sell that month
+
the amount of inventory the company wants on hand at the end of the month
=
?
Equation:
Total inventory needed
Equation:
cost of budgeted sales(aka budgeted cost of goods sold)
+
desired ending inventory
=
total inventory needed
-
beginning inventory
=
required purchases
Equation:
Amount of inventory purchased
Companies can purchase inventory with cash or on the account. If purchased on account, this schedule must be prepared.
Schedule of cash payments for inventory purchases.
Amount of sales on account during the final recorded month on a sales budget.
Accounts receivable balance
The sum of the total budgeted sales on a sales budget.
Sales revenue balance
Effective responsibility accounting requires clear lines of authority and responsibility. Ina. small business, one person can control everything: marketing, production, management, and accounting. In a large company, authority and control must be divided among many people.
Decentralization concept
Delegating authority and responsibility.
Decentralization
An organizational unit that controls identifiable revenue or expense items. The unit may be a division, department, subdepartment, or even a single machine. Includes cost center, profit center, and investment center.
Responsibility centers
An organizational unit that incurs expense but does not generate revenue. Research and development.
Cost center
