Accounting chap 20

Vocabulary flashcards covering core definitions, concepts, budget schedules, and formulas from the master budget process, administration, and financial statements.

Budgeting

The process of planning future business actions and expressing them as formal plans.

Budget

A formal statement of a company's plans expressed in dollars and/or units, typically covering shorter periods such as a month, quarter, or year.

Budgetary Control

Management's use of budgets to see that planned objectives are met, carried out across four steps: (1) develop the budget from planned objectives, (2) compare actual results to budgeted amounts and analyze differences, (3) take corrective and strategic actions, and (4) establish new objectives and a new budget.

Participatory Budgeting

A budgeting approach where employees who are affected by a budget participate in and help prepare it.

Budgetary Slack

A cushion created under participatory budgeting when employees intentionally understate sales budgets or overstate expense budgets to make performance targets easier to attain.

Continuous Budgeting

A practice where a company continually revises its budgets as time passes, frequently using rolling budgets by adding a new quarter to replace the one that just elapsed so that budgets are continuously available for the next $12$ months or four quarters.

Zero-Based Budgeting

A budgeting method requiring all expenses to be justified for each new budget period by analyzing every activity in the organization to confirm necessity, rather than relying on prior period figures.

Master Budget

A formal, comprehensive plan consisting of several interconnected operating, investing, and financing budgets, starting with the sales budget and ending with the budgeted financial statements.

Sales Budget

The starting point of the master budgeting process that shows planned sales units and expected revenue dollars, calculated as: $\text{Budgeted sales dollars} = \text{Budgeted sales units} \times \text{Selling price per unit}$.

Safety Stock

A quantity of inventory held to protect against lost sales caused by unfulfilled customer demand or shipping delays from suppliers.

Production Budget

An operating budget that shows the units of product to manufacture each period to meet budgeted sales and ending inventory targets, computed as: $\text{Units to produce} = \text{Budgeted sales units} + \text{Desired ending finished goods inventory units} - \text{Beginning finished goods inventory units}$. It is always expressed in units, not costs.

Reverse Supply Chain

A supply chain process that focuses on returns management, refurbishing, recycling, and resale of products once returned by customers.

Direct Materials Budget

A manufacturing operating budget that translates units to produce into budgeted quantities and costs of raw materials needed to purchase, computed as: $\text{Materials to purchase} = (\text{Units to produce} \times \text{Materials required per unit}) + \text{Desired ending materials inventory} - \text{Beginning materials inventory}$.

Direct Labor Budget

An operating budget detailing direct labor hours and labor costs required to complete planned production, computed as: $\text{Cost of direct labor} = \text{Units to produce} \times \text{Direct labor hours required per unit} \times \text{Direct labor cost per hour}$.

Factory Overhead Budget

An operating budget showing the projected variable and fixed manufacturing overhead costs necessary to complete production for the period.

Budgeted Cost of Goods Sold

The budgeted product cost associated with sales units, calculated as: $\text{Budgeted cost of goods sold} = \text{Budgeted sales units} \times \text{Product cost per unit}$.

Selling Expense Budget

An operating budget detailing the types and amounts of selling expenses anticipated during the period, encompassing both variable expenses (such as sales commissions) and fixed expenses (such as sales management salaries).

General and Administrative Expense Budget

An operating budget that reports planned operating expenses for administrative and non-manufacturing support activities, such as administrative salaries, office expenses, and depreciation on non-manufacturing assets.

Capital Expenditures Budget

An investing budget that reports expected cash inflows and cash outflows related to the purchase and sale of plant assets.

Cash Budget

A financing budget that projects cash receipts and cash payments to determine preliminary cash balance, planned loan repayments, or needed borrowings to maintain a targeted minimum cash balance.

Budgeted Income Statement

A predicted financial statement presenting expected revenues, cost of goods sold, operating expenses, interest expense, income taxes, and net income for the budget period.

Budgeted Balance Sheet

A predicted financial statement showing expected ending balances for assets, liabilities, and stockholders' equity at the close of the budget period.

Variances

The differences between actual operational results and budgeted figures used by management to evaluate performance and initiate corrective actions.

Just-in-Time (JIT) Inventory System

An inventory management system that utilizes short-term sales budgets (often covering only one or two days) to procure only enough merchandise or raw materials to satisfy immediate customer demand.

ESG Budgeting

The allocation of financial resources to environmental, social, and governance goals that are meaningful to stakeholders, such as waste reduction, reduced water usage, and employee mentoring programs.

Revenue per Employee

A workforce productivity ratio measuring revenue generation efficiency, computed as: $\text{Revenue per employee} = \frac{\text{Total revenue}}{\text{Total employees}}$.

Merchandise Purchases Budget

A budget prepared by merchandising companies in units and dollars to determine inventory purchases needed, computed as: $\text{Units to purchase} = \text{Budgeted sales units} + \text{Desired ending merchandise inventory units} - \text{Beginning merchandise inventory units}$.