Chapter 10 - Budgetary Planning Budgeting Basics A budget...

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Budgetary Planning Budgeting Basics A budget is a formal written statement of management's plans for a specified time period, expressed in financial terms. 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 The primary benefits of budgeting are as follows: I. It requires all levels of management to plan ahead. II. It provides definite objectives for evaluating performance. III. It creates an early warning system for potential problems. IV. It facilitates the coordination of activities within the business. V. It results in greater management awareness of the entity's overall operations. VI. It motivates personnel throughout the organization. Essentials of Effective Budgeting 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. b. Research and analysis to determine the feasibility of new products, services, and operating techniques. c. Management acceptance , which is enhanced when all levels of management participate in the preparation of the budget, and the budget has the support of top management. The most common budget period is one year. A continuous twelve- month budget results from dropping the month just ended and adding a future month. The annual budget is often supplemented by monthly and quarterly budgets. The responsibility for coordinating the preparation of the budget is assigned to a budget committee. The budget committee usually includes the president, treasurer, chief accountant (controller), and management personnel from each major area of the company. A budget can have a significant impact on human behaviour. A budget may have a strong positive influence on a manager when: 1 | P a g e eca0b32175a45e50a236e701604c3561c09f8131
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a.Each level of management is invited and encouraged to participate in developing the budget. b. Criticism of a manager's performance is tempered with advice and assistance. Long-range planning involves the selection of strategies to achieve long- term goals and the development of policies and plans to implement the strategies. Long-range plans contain considerably less detail than budgets. COMPONENTS OF THE MASTER BUDGET The Master Budget The master budget is a set of interrelated budgets that constitutes a plan of action for a specified time period. It is developed within the framework of a sales forecast which shows potential sales for the industry and the company's expected share of such sales. There are
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Chapter 10 - Budgetary Planning Budgeting Basics A budget...

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