Chapter 7-Student - CHAPTER 7 Class Notes Profit Planning...

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CHAPTER 7 Class Notes Profit Planning Compiled by: Janice H. Fergusson, CPA Certain materials used with permission of McGraw-Hill Companies, Inc. Basic Framework of Budgeting Budget - Detailed plan for acquiring and using financial and other resources over a specified forthcoming time period. Budgeting involves two stages: _____________ - Developing objectives and preparing various budgets to achieve these objectives. _____________ - Steps taken by management that attempt to ensure the objectives are attained. Advantages of Budgeting Budgeting forces managers to think about and plan for the _________. Budgets communicate management’s plans throughout the organization. Budgets provide a means of allocating resources to their most effective uses. Budgeting uncovers potential bottlenecks. Budgeting coordinates the activities of the entire organization. Budgeting provides goals that serve as benchmarks for evaluating subsequent performance. Responsibility Accounting Managers should be held responsible for those items – and only those items – that the manager can actually control to a significant extent. Choosing the Budget Period Operating budgets usually for one year-period. Many companies divide their budget year into four quarters, and then subdivided into months.
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ACCT 226 – Chapter 7 Page 2 of 7 Spring 2011 – Student Version Master Budget Overview Integrated group (set) of detailed budgets. As we can see from Exhibit 7-2 (page 314), individual operating budgets are compiled in the preparation of the cash budget and forecasted (budgeted) financial statements.
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