review20 - CHAPTER 20 The Budgeting Process 00001REVIEWING...

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CHAPTER 20 The Budgeting Process 00001REVIEWING THE CHAPTER Objective 1: Define budgeting, and explain management’s role in the budgeting process. 10. Budgeting is the process of identifying, gathering, summarizing, and communicating financial and nonfinancial information about an organization’s future activities. It is an essential part of the continuous planning all types of organizations must do to accomplish their long-term goals and intermediate objectives. Budgets —plans of action based on forecasted transactions, activities, and events—are synonymous with managing an organization. They are used for a variety of purposes, including communicating information, coordinating activities and resource usage, motivating employees, and evaluating performance. 20. Strategic planning is the process by which management establishes an organization’s long- term goals. These goals define the strategic direction an organization will take over a five- to ten-year period and are the basis for making annual operating plans and preparing budgets. Annual operating plans involve every part of an enterprise and are much more detailed than long-term strategic plans. To formulate an annual operating plan, an organization must restate its long-term goals in terms of what it needs to accomplish during the next year. The short-term goals identified in an annual operating plan are the basis of an organization’s operating budgets for the year. 30. The key to a successful budget is participative budgeting. This is a process in which personnel at all levels of an organization take an active and meaningful part in the creation of the budget. 40. A budget committee made up of top management has overall responsibility for budget implementation. The committee oversees each stage in the preparation of the master budget, decides any departmental disputes that may arise in the process, and gives final approval to the budget. After the committee approves the master budget, periodic reports from department managers enable it to monitor the progress the company is making in attaining budget targets. To ensure the cooperation of personnel in implementing the budget, top managers must clearly communicate performance expectations and budget targets. They must also show their support for the budget and encourage its implementation. 50. Budgeting is helpful to managers at each step of the management process. a0. When managers plan, budgeting helps relate long-term strategic goals to short-term activities, distribute resources and workloads, communicate responsibilities, select performance measures, and set standards for bonuses and rewards. b0.
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This note was uploaded on 06/10/2009 for the course ACG 2071 taught by Professor Magoulis,b during the Spring '08 term at Pasco-Hernando Community College.

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review20 - CHAPTER 20 The Budgeting Process 00001REVIEWING...

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