FINC 577 Chapter 9 Notes Outline

Goals risk of unreliable budgets greater when they

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Unformatted text preview: unreliable budgets greater when they are “top“top-down.” Chapter 9-11 Participative Budgeting Disadvantages: Can be time consuming time and costly. costly. Can foster budgetary “gaming” through budgetary budgetary slack: Situation where managers intentionally un underestimate budgeted revenues or overestimate overestimate budgeted expenses so that budget goals are easier to meet. Chapter 9-12 Budgeting Budgeting Versus Long Range Planning Three basic differences between Budgeting and Long Range Planning: __________involved, __________, and _____ presented, Budgeting is short-term – usually one year. Long range planning - at least five years. Chapter 9-13 The Master Budget A set of interrelated budgets that constitutes a plan of action for a specified time period. Contains two classes of budgets: Operating budgets: Individual budgets that result in the preparation of the budgeted income statement – establish goals for sales and production personnel. Financial budgets: The capital expenditures budget, the cash the budget, budget, and the budgeted balance sheet – focus primarily on cash needs to fund operations and capital expenditures. Chapter 9-14 The The Master Budget - Components Chapter 9-15 Operating Budgets: Sales Budget First budget prepared. Derived from the sales forecast. Management’s best estimate of sales revenue best for the budget period. Eve...
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