Ch7 Acc212

budget

a financial plan that managers use to coordinate business activities

benchmarking

the practice of comparing a company with its prior performance or with the best practices of another company

participative budget

a budgeting process where those individuals who are directly impacted by a budget are involved in the development of the budget

budgetary slack

a type of budgetary game that occurs when managers intentionally understate revenue or overstate expenses

Spend it or lose it

a budgetary game where excess budget is rapidly spent at the end of a financial quarter

Previous Year Budget

can be used to create a budget and is modified for expected changes, changes must be justified from previous year results

zero based budget

a budget developing strategy where all revenues and expenses must be justified for each new period

strategic budget

a long term financial plan used to coordinate activities needed to achieve the long term goals of the company

operational budget

a short term financial plan used to coordinate the activities needed to achieve the short term goals of the company

continuous budget

a type of operational budget that involved continuously adding one month as each month goes by

static budget

a budget prepared for only one level of sales volume

flexible budget

a budget prepared for various levels of sales volume

master budget

a set of budgeted financial statements and supporting schedules for an entire organization. Includes: operating budget, capital budget, and financial budget

operating budget

a set of budgets that projects sales revenue, COGS, and S&A expenses, all of which feed into the cash budget and then the budgeted financial statements Includes: Sales Budget, Inventory Purchases Budget, and Selling and Administrative Expense Budget

capital expenditures budget

presents a company’s plan for purchasing long term assets
if capital expenditures are few in number they may be directly added to the cash budget

financial budget

includes the cash budget and the budgeted financial statements

cash budget

details how the business expects to go from the beginning cash balance to the desired ending cash balance.
Companies often borrow funds to maintain the minimum cash balance
If capital expenditures are few in number they may be added to the cash budget

Sales Budget

the forecast of sales revenue is the cornerstone of the master budget. Also part of the operating budget)

Inventory, Purchases, and COGS Budget

+COGS
+Ending Inv
= Total Inventory Needs
- Beginning Inv
=Inventory Purchases

Selling and Administrative Expense Budget

estimates the S&A Expenses needed to meet the company’s projected sales

Sensitivity Analysis

a what if technique that asks what a result will be if a predicted amount is not achieved or if an underlying assumption changes.
It provides a better understanding if how changes in sales and costs are likely to affect the company’s bottom line

Data Analytics can be used to…

• Help with sales forecasting and financial planning

• drive growth and operational efficiency

• establish budgets and monitor them against the actual results

Technology can be used for…

• making it more cost effective to combine individual unit budgets to create a company wide master budget

• making budget management software to combine budget data from multiple segments for financial statements

• spending less time of managers of compiling and summarizing data and more time analyzing and making decisions to ensure that the budget leads the company to achieve the key strategic goals