Chapter 6 Managerial Accounting

Authority

Empowerment to make decsions, often denoted by position or rank

Autonomy

Independence to make final decisions within assigned jurisdictions

Budgetary Slack

Intentionally overstating budgeted expenses or understating budgeted revenues to achieve targets more easily
→ Misallocation of resources, inflation of costs, profit issues

Business Unit

An independent unit in a larger corporation, like a territory, circuit, division, branch, office, department, station, program or center

Cash Collections

Cash inflows that result when customers pay their accounts receivable balance

Cash Reciepts

Cash Sales + Cash Collections (from Accounts Receivable)

Cash Sales

Sales settled in cash at once

Centralization

When decision-making authority resides narrowly at the highest levels of the company

Cost Center

A responsibility center responsible for managing costs and fulfilling its role in the value chain

Credit Sales

Sales for which credit is extended to customers, triggering accounts receivable to be collect typically withint 30-60 days

Decentralization

Decision making authority resides with managers at all levels who can make binding decisions without interference from upper management

Financial Budget

The budget comprising a company’s plans and schedules resulting in the budgeted (pro forma) balance sheet

Imposed Budget

A mandated, top-down budget created and approved by top execs and enacted thruout the company

Investment Center

An organizational unit responsible for selecting which assets to use to generate a target return and how to reinvest returns

Master Budget

A comprehensive organization-wide plan to coordinate a company’s goals and to allocate resource for the upcoming year or period

Operating Budget

Budget comprised of the plans and schedules that result in the budgeted income statement

Participative Budget

Budget created by managers throughout the organization who are the most knowledgeable about the factors impacting their immediate operations

Piecework

Work for which compensation is paid per unit of output to incentivize productiviy

Pro forma

“for the sake of form” → “budgeted” depicting a future outcome

Profit Center

An organizational unit responsible for generating revenues and maintaining expenses

Responsibility

A duty that an employee assumes for task completion within a given job description and skill level as assigned by managers

Responsibility Center

A business unit, subunit organized according to its focus/area of control
1. Profit Center
2. Cost Center
3. Revenue Center
4. Investment Center

Revenue center

Business unit responsible for generating sales

Rolling budget

A budget where the budget period is continually updated so that is always shows forecast numbers for a future set interval

Safety Stock

A planned buffer of ending FG inventory so a company can continue selling when actual demand exceeds sales forecast

Stretch goals

Short-term objectives that reflect stepping stones toward an entity’s longer-term goal

Trade credit

A business agreement allowing a customer to purchase goods and pay at a later date 2/10 n30

Use it or lose it

Spending all funds in an allocated budget to avoid being granted fewer funds the next year

Zero-based budget

A budget that is created from scratch or zero with each number requiring justification for inclusion and having a specific designation

Strategic Planning Process

1. Mission and vision

2. Goals and objectives

3. Strategies and initiatives

4. Measures and targets

5. Results