Fundamental Accounting Principles Ch. 22 Master Budgets and Planning – Flashcards
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Activity-Based Budgeting (ABB)
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A budget system based on expected activities
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Budget
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A formal statement of a company's future plans; expressed in monetary terms; short-term financial plan
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Budgeted Balance Sheet
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A managerial accounting report showing predicted amounts for the company's assets, liabilities, and equity as of the end of the budget period
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Budgeted Income Statement
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A managerial accounting report showing predicted amounts of sales and expenses for the budgeted period
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Budgeting
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The process of planning future business actions and expressing them as formal plans; provides standards for evaluating performance and can affect attitudes of employees evaluated by them
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Capital Expenditures Budget
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Lists dollar amounts to be both received from plant asset disposals and spent to purchase additional plant assets to carry out the budgeted business activities
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Cash Budget
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Shows expected cash inflows and outflows during the budget period
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Continuous Budgeting
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Practice of preparing budgets for a selected number of future periods and revising those budgets as each period is completed
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General and Administrative Expense Budget
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Plans the predicted operating expenses not included in the selling expenses budget; can be variable or fixed with respect to sales volume
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Manufacturing Budget
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Shows the budgeted costs for direct materials, direct labor, and overhead; based on the budgeted production volume from the production budget
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Master Budget
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A formal, comprehensive plan for a company's future; contains several individual budgets that are linked with each other to form a coordinated plan
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Merchandise Purchases Budget
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A plan that shows the units or costs of merchandise to be purchased by a merchandising company during the budget period
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Production Budget
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Shows the number of units to be produced each month; always expressed in units of product
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Rolling Budgets
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New set of budgets a firm adds for the next period (with revisions) to replace the ones that have lapsed
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Safety Stock
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A quantity of inventory that provides protection against lost sales caused by unfulfilled demands from customers or delays in shipments from suppliers
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Sales Budget
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Shows the planned sales units and the expected dollars from these sales; the starting point in the budgeting process for most departments
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Selling Expense Budget
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A plan listing the types and amounts of selling expenses expected during the budget period
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Future
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The relevant focus of a budgetary analysis is the ____
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Evaluation
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Assists management in identifying problems and taking corrective actions if necessary
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Expected or Budgeted
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An evaluation using ______ performance is potentially superior to using past performance to decide whether actual results trigger a need for corrective action.
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Three Guidelines of Budgeting Process
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1) Employees affected by a budget should be consulted when it's prepared 2) Goals reflected in a budget should be attainable 3) Evaluations should be made carefully with opportunities to explain any failures
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Budgetary Slack
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Employees understate sales budgets and overstate expense budgets to allow them a cushion or _______
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Bottom-up Process
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Allows for all employees to be active in preparing budget figures with central guidance
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Bottom-up Process Risk
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Employees feel that the numbers fail to reflect their special problems and needs
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Just-in-time Inventory
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An inventory system that uses sales budgets for short periods to order just enough merchandise to satisfy the immediate sales demands; keeps inventory to a minimum (or zero in an ideal situation)
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Inventory to be Purchased =
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Budgeted ending inventory + Budgeted cost of sales for the period - Budgeted beginning inventory
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Examples of General and Administrative Expenses
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Interest Expense and Income Tax Expense
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Preliminary Cash Balance =
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Beginning Cash Balance + Budgeted Cash Receipts - Budgeted Cash Disbursements
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Preliminary Cash Balance is Adequate
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Repay loans, buy securities
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Preliminary Cash Balance is too low
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Increase short-term loans
