Budgeting Process
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Questions and Answers

What is the primary method of communicating agreed-upon objectives throughout an organization?

  • Budgeting (correct)
  • Performance evaluation
  • Financial reporting
  • Managerial accounting
  • What is the responsibility of accountants in the budgeting process?

  • Formulating future budgets
  • Evaluating budget performance
  • Presenting management's budgeting goals in financial terms (correct)
  • Implementing budgeting goals
  • What is a primary benefit of budgeting?

  • Improving financial reporting
  • Evaluating employee performance
  • Controlling costs
  • Requiring all levels of management to plan ahead (correct)
  • What is a key aspect of the budgeting process?

    <p>Historical accounting data</p> Signup and view all the answers

    Who is responsible for the budget and its administration?

    <p>Management</p> Signup and view all the answers

    What is a budget, according to the text?

    <p>A formal written statement of management's plans for a specified future time period</p> Signup and view all the answers

    What is the primary role of management in the budgeting process?

    <p>To plan and set goals and objectives</p> Signup and view all the answers

    What is a key benefit of participative budgeting?

    <p>Greater employee motivation and commitment</p> Signup and view all the answers

    How does budgeting affect human behavior?

    <p>It leads to greater motivation and commitment</p> Signup and view all the answers

    What is a key component of the master budget?

    <p>All of the above</p> Signup and view all the answers

    What is the purpose of a budgeted income statement?

    <p>To predict profitability</p> Signup and view all the answers

    Study Notes

    The Budgeting Process

    • Base budget goals on past performance by collecting data from organizational units and developing a budget within a framework of a sales forecast.
    • A sales forecast shows potential industry sales and the company's expected share.
    • Factors considered in sales forecasting include:
      • General economic conditions
      • Industry trends
      • Market research studies
      • Anticipated advertising and promotion
      • Previous market share
      • Price changes
      • Technological developments

    Budgeting and Human Behavior

    • Participative budgeting involves each level of management participating in the budgeting process.
    • Advantages of participative budgeting include:
      • More accurate budget estimates due to lower-level managers' detailed knowledge of their area.
      • Tendency to perceive the process as fair due to involvement of lower-level management.
    • Disadvantages of participative budgeting include:
      • Time-consuming and costly process.
      • Can foster budgetary "gaming" through budgetary slack.

    Budgeting and Long-Range Planning

    • Three basic differences between budgeting and long-range planning:
      • Time period involved (budgeting is short-term, usually one year, while long-range planning is at least five years).
      • Emphasis (budgeting is short-term, while long-range planning is long-term).
      • Detail presented (budgeting is more detailed, while long-range planning is more general).

    Budgeting Terminology

    • Master budget: a set of interrelated budgets that constitutes a plan of action for a specified time period.
    • Long-range planning: identifies long-term goals, selects strategies to achieve these goals, and develops policies and plans to implement the strategies.

    Effective Budgeting

    • Essentials of effective budgeting include:
      • Management acceptance
      • Research and analysis
      • Sound organizational structure
    • Budget: a formal written statement of management's plans for a specified future time period, expressed in financial terms.
    • Primary benefits of budgeting include:
      • Requires all levels of management to plan ahead.
      • Promotes efficiency and control.

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    Description

    This quiz covers the essentials of effective budgeting, including setting base budget goals, collecting data, and developing a budget within a sales forecast framework.

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