Chapter_24_for_Class - Chapter 24 The Budgeting Process The...

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Chapter 24 “The Budgeting Process”
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The Budgeting Process Objective 1 Define budgeting and explain its role in the management cycle
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Budgeting … is the process of identifying, gathering, summarizing, and communicating financial and nonfinancial information about an organization's future activities Is essential part of the continuous planning for an organization in order to accomplish long-term goals
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The Budgeting Process Budgets Plans of action based on forecasted transactions, activities, and events Are synonymous with managing an organization Essential to accomplishing goals in the strategic plan
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The Budgeting Process (cont’d) Budgets are used to Communicate information Coordinate activities and resource usage Motivate employees Evaluate performance Manage and account for cash Establish minimum levels of cash receipts and expenditures
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The Budgeting Process (cont’d) Many forms of budgets Examples Cash budget Focuses on financial information » Shows, among other things, how cash resources will be allotted to operating, investing, and financing activities over a future period Production budget – Focuses on nonfinancial information » Shows planned production in units » Identifies activities needed to meet certain requirements or standards
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Budgeting and Goals Strategic planning Process by which management establishes an organization’s long-term goals
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Long-Term Goals … define the strategic direction an organization will take over a five- to ten- year period Are the basis for Making annual operating plans Preparing budgets
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Long-Term Goals (cont’d) Should take into consideration Economic and industry forecasts Employee-management relations Structure and role of management Value chain considerations Organizational capacity Any other operational and tactical issues facing the organization Expected quality of products or services Growth rates Desired market share
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Long-Term Goals (cont’d) Must set specific targets and timetables Must assign responsibility for achieving the goals to specific personnel A range of long-term goals should be included in the organization's strategic plan Should give direction to efforts to achieve these goals
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Short-Term Goals Involve every part of an enterprise Much more detailed than long-term goals To formulate an annual operating plan, long-term goals must be restated in terms of what needs to be accomplished during the next year Short-term goals are the basis of an organization’s operating budgets for the year
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Short-Term Goals (cont’d) Organization’s controller takes charge of coordinating the budget process Designs a complete set of budget-development directions Timetable with deadlines Assigns clearly defined responsibilities for carrying out each part of the budget’s development To specific individuals or management teams The budget may be reviewed and revised during the year
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Chapter_24_for_Class - Chapter 24 The Budgeting Process The...

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