chap06 - David Franz 2012 Chapter 6 Master Budget and...

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© David Franz, 2012 Chapter 6: Master Budget and Responsibility Accounting And Appendix (Cash Budget) I. Master Budget A. The budget process starts with the Strategic Plan – what the long range plans are for the business, e.g. what products/services will it sell, what countries it will operate in. what it will and will not do. B. Master budget implements the strategic plan using is a formal planning device to coordinate the various activities of a firm, e.g. marketing, production, purchasing. The budget links together all of the activities that the firm undertakes into one clear set of targets. C. Advantages of budgets: 1. Forces managers to make long-range and short-range plans rather than just focusing on today’s problems. 2. Promotes communication and coordination among the various components of the firm. 3. Provides a framework for evaluating performance. Comparing actual results against budgeted expectations is better than comparing actual results against past results. D. Comprehensive budget typically includes: 1. Budgeted income statement (operating budget) 2. Budgeted balance sheet 3. Cash budget 4. Capital budget (for large fixed assets, e.g. buildings) 5. Supporting schedules as needed See Exhibit 6-2, p. 190. 1
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E. Budgets are for internal management accounting only. Therefore, a firm can do whatever type of budget works for them (benefits > costs). Some do annual budgets, some do longer term budgets, some do rolling budgets, and some do multiple budgets. II. Budgeted Income Statement (Operating Budget) A. First step in budgeting is to forecast sales (Revenue budget). Methods used include: 1. Base forecast on a general indicator, e.g. expected Gross Domestic Product. 2.
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This note was uploaded on 09/29/2011 for the course ACCT 305 taught by Professor Franz during the Spring '07 term at S.F. State.

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chap06 - David Franz 2012 Chapter 6 Master Budget and...

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