Managerial Accounting Chapter 8

budget

detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period

-ordinarily covers one year

-some known as perpetual

operating budget

cover one year period corresponding to a company’s fiscal year

many divide their annual budget into 4 quarters

continuous budget

12 month budget that rolls forward one month or quarter as the current month is completed

planning

involves developing objectives and preparing various budgets to achieve those objectives

control

involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained and that all parts o fthe organization are working together toward that goal

why do organizations create budgets (planning)

define goals and objectives, think about and plan for the future, means of allocating resources, uncover potential bottlenecks, coordinate activities, communicate plans

why do organizations create budgets (control)

improve the efficiency and effectiveness of operations, evaluate and reward employees

self imposed/paricipative budget

prepared with the full cooperation and participation of managers at all levels

should be reviewed by higher levels of management to prevent budgetary slack

advantages of self imposed budgets

1. It shows respect for their opinions when lower-level managers
are involved in the budgeting process.
2. Budget estimates prepared by front-line managers are often
more accurate than estimates prepared by top managers.
3. Motivation is generally higher when individuals participate in
setting their own goals than when the goals are imposed from
above.
4. It empowers them to take ownership of the budget and to be
accountable for deviations from it.

Master budget

based on various estimates and assumptions

production budget

must be adequate to meet budgeted sales and to provide for the desired ending inventory

depreciation

noncash charge

cash budget divided into four sections

cash receipts, cash disbursements, cash excess or defifiency, and financing section

cash receipts

section lists all cash inflows excluding cash received from financing;from financing

cash disbursements

section consists of all cash payments excluding repayments of principal and interest; excluding repayments of principal and interest

cash excess or deficiency section

determines if the company will need to borrow money need to borrow money or if it will be able to repay funds previously or if it will be able to repay funds previously borrowed

financing section

details the borrowings and repayments projected to take place during the budget period