Chapter 20 - Managerial Accounting The Budgeting Process...

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Chapter 20 Author: Anna Rovira Beavers Needles 2008 8/6/07 1 Managerial Accounting The Budgeting Process Chapter 20 The Budgeting Process Budgeting: The process of identifying, gathering, summarizing and communicating financial and non-financial information about an organization. Budget: A plan of action that forecasts future transactions, activities, and events financial and non-financial. Budgets are prepared by all types of organizations, for profit, non-profit, etc. Budgets allows an organization to establish the following: 1. The minimum desired level of revenue, or target level of revenues 2. The corresponding spending for the creation of the desired revenue. Long Term Goals: Annual operating plans cannot be made unless the people preparing the budget, such as budget analysts, department managers, members of the executive teams, etc. know the future direction that has been established for the company. Therefore, managers must be careful to ascertain that the budget works in conjunction with the long-term goals of the organization. Long-term goal may consist of a 1 to 5 years organizational plan Short-Term Goals: Short-term goals are prepared after long-term goals have been developed. Short-term goal involves planning, in detail, every part of the enterprise and is much more detailed that long-term goals. Once management has set the short-term goals, the controller or budget director takes charge of preparing the budget. A timetable for the preparation is established with specific deadlines for the operational plans that will be developed together with the managers of every department. The Importance of Participation: The success of a budget depends on the information obtained. Therefore close participation with all department managers; as well other key, people of the organization will insure that accurate data, and buying in the entire budget process. Participative Budgeting is a process in which personnel at all levels of an organization meaningfully and actively takes part in the creation of budgets. The premise is that, if every manager has a had a voice in setting the goals of his or her unit, every manager will feel personally motivated to endure the success of the budgeting process. The Master Budget:
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Chapter 20 - Managerial Accounting The Budgeting Process...

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