Week 9 Flashcards
(17 cards)
what is a budget
a financial plan of operation or entity for a period of time usually one year
whats a budget comittee
the co-ordinating body in the preparation and administration of budgets
what is a budget manual
a collection of instructions governing the budgetary processes
what does a budget manual contain
- explanation of the objectives if the budget
- organisational structures
- principle budgets
- administrative detail
what is in a subsidiary budgets (10)
- sales
- materials purchases
- production
- labour
- capital expenditure
- overheads
- trade payables
- trade receivables
- finished inventories
- raw inventories
what are master budgets created from
subsidiary budgets
what does a master budget consist of
- forecast income statement
- forecast SOFP
- cash flow forecast
what can a master budget be used as
a business plan
what are the two approaches to budgeting
- top down
* bottom up
whats the bottom up approach to budgeting
involves participation of workforce who submits budget to superiors
whats the top down approach to budgeting
senior management lays down the budget with little or no employee involvement
what is the top down approach to budgeting also known as
imposed budgeting
what are the other names for the bottom up approach to budgeting
- departmental budgeting
* participative budgeting
advantages of bottom up approach
- more accurate as employees have good knowledge of their operations
- motivation
- reduces workload for top management
disadvantages of bottom down approach
- time consuming
- may never get agreement if too many conflicting views
- staff may lack skills required
what can cash budgets help managers to plan (5)
- financing needs
- when to time capital expenditure
- impact of credit terms on cash flow
- utilisation of square cash to generate returns
- impact of working capital management on cash flow
appropriateness of top down approach
- newly formed organisations
- very small businesses
- when operational managers lack budgeting skills
