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Unformatted text preview: Chapter 20 The Navigator Scan Study Objectives Read Preview Read Chapter Review Work Demonstration Problem Answer True-False Statements Answer Multiple-Choice Questions Match Terms and Definitions Solve Exercises B UDGETARY PLANNING CHAPTER STUDY OBJECTIVES After studying this chapter, you should be able to: 1. Indicate the benefits of budgeting. 2. State the essentials of effective budgeting. 3. Identify the budgets that comprise the master budget. 4. Describe the sources for preparing the budgeted income statement. 5. Explain the principal sections of a cash budget. 6. Indicate the applicability of budgeting in nonmanufacturing companies. The Navigator PREVIEW OF CHAPTER 20 Our primary focus in this chapter is budgeting ⎯ specifically, how budgeting is used as a planning tool by management. Through budgeting, it should be possible for management to maintain enough cash to pay creditors, to have sufficient raw materials to meet production requirements, and to have adequate finished goods to meet expected sales. The content and organization of this chapter are as follows: BUDGETARY PLANNING Cash Budgeted Balance Preparing the Preparing the Financial Budgeting Basics Operating Budgeting in Nonmanu- Budgets Budgets facturing Companies Merchandisers Service Not-for-profit Budgets and Accounting Benefits Essentials of Effective Budgeting Length of Budget Period Budgeting Process Budgeting and Human Behavior Budgeting and Long-range Planning Sales Production Direct Materials Manufacturing Overhead Selling and Administrative Expense Budgeted Income Direct Labor The Master Budget The Navigator Sheet Statement 20-2 Kimmel Accounting: Tools for Business Decision Making _____________________________________________________________________________ CHAPTER REVIEW Budgeting Basics 1. (S.O. 1) A budget is a formal written statement of management's plans for a specified time period, expressed in financial terms. 2. The role of accounting during the budgeting process is to (a) provide historical data on revenues, costs, and expenses, (b) express management's plans in financial terms, and (c) prepare periodic budget reports. Benefits of Budgeting 3. The primary benefits of budgeting are as follows: a. It requires all levels of management to plan ahead. b. It provides definite objectives for evaluating performance. c. It creates an early warning system for potential problems. d. It facilitates the coordination of activities within the business. e. It results in greater management awareness of the entity's overall operations. f. It motivates personnel throughout the organization. Essentials of Effective Budgeting 4. (S.O. 2) In order to be effective management tools, budgets must be based upon a. A sound organizational structure in which authority and responsibility are clearly defined....
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