c9 - Chapter 9 Lecture Notes Chapter theme This chapter...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
153 Chapter 9 Lecture Notes Chapter theme: This chapter focuses on the steps taken by businesses to achieve their planned levels of profits – a process called profit planning . Profit planning is accomplished by preparing numerous budgets, which, when brought together, form an integrated business plan known as a master budget . I. The basic framework of budgeting Learning Objective 1: Understand why organizations budget and the processes they use to create budgets. A. Basic definitions i. A budget is a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. 1. The act of preparing a budget is called budgeting . 2. The use of budgets to control an organization’s activities is known as budgetary control . B. Difference between planning and control i. Planning involves developing objectives and preparing various budgets to achieve those objectives. ii. Control involves the steps taken by management to increase the likelihood that the objectives set down 1 3 4 2
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
154 at the planning stage are attained and that all parts of the organization are working together toward that goal. iii. To be effective, a good budgeting system must provide for both planning and control. Good planning without effective control is time wasted. C. Advantages of budgeting i. Budgets communicate management’s plans throughout the organization. ii. Budgets force managers to think about and plan for the future . iii. The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. iv. The budgeting process can uncover potential bottlenecks before they occur. v. Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. vi. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance. Help Hint: Mention to students that budgets are prepared for reasons other than projecting income statement and balance sheet account balances. Ask 5 4
Background image of page 2
155 students to think about some other information that might be provided by budgets, such as determining the need for short-term borrowing or estimating raw material needs. D. Other terminology/concepts related to budgeting i. Responsibility accounting 1. The premise of responsibility accounting is that managers should be held responsible only for those items that they can control to a significant extent. a. Responsibility accounting systems enable organizations to react quickly to deviations from their plans and to learn from feedback obtained by comparing budgeted goals to actual results. The point is not to penalize individuals for missing targets. ii.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/08/2010 for the course BA DA321 taught by Professor Kim during the Spring '10 term at Aarhus Universitet.

Page1 / 21

c9 - Chapter 9 Lecture Notes Chapter theme This chapter...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online