Lecture 6 Pre Lecture Work Flashcards
(17 cards)
What is a budget?
A financial plan for implementing management decisions
Source: Drury, 201
What is the budgetary process (budgeting)?
The process by which a business develops and coordinates plans, and monitors the plan against reality
How does a budget differ from a forecast?
A budget is a plan of management’s intentions, while a forecast predicts likely future conditions
What are the purposes of budgets? List them.
- Planning
- Control
- Coordination
- Communication
- Motivation
- Evaluate
What is the first step in the budgetary process?
Establish Responsibility
Who usually leads the establishment of responsibility in the budgetary process?
A budget committee (senior management & department representatives)
What role do management accountants play in the budgetary process?
They coordinate and provide financial expertise
What is communicated to managers during the budgetary process?
Strategic plans, market trends, inflation rates & company policies
What is the starting point for budget preparation?
Identify the key/limiting factor
What type of budget should be prepared if sales is the limiting factor?
Sales budget
Who is responsible for drafting budgets in a bottom-up approach?
Junior managers
What does the review and coordination of budgets ensure?
Internal consistency among department budgets
What is included in the master budget?
Budgeted Income Statement and Statement of Financial Position, along with a cash budget
What is the purpose of communicating budgets to interested parties?
To be used for control and performance evaluation
What is a periodic budget?
A budget prepared annually, which may be too rigid in fast-changing environments
What is a rolling or continuous budget?
A budget that always covers the next 12 months by dropping the oldest month and adding the next one
What is reforecasting?
Revising budgets part-way through the year, allowing flexibility and responsiveness
