Budgets Cheatsheet PDF

# Budgets Cheatsheet ## Meaning And Purpose Of Budgets - Budgeting: Planning future activities by setting financial targets. - Importance: - Provides direction - Effective resource allocation - Employee motivation - Performance measurement ## Key Features Of Effective Budgeting -...

# Budgets Cheatsheet ## Meaning And Purpose Of Budgets - Budgeting: Planning future activities by setting financial targets. - Importance: - Provides direction - Effective resource allocation - Employee motivation - Performance measurement ## Key Features Of Effective Budgeting - Plan, not forecast: Targets to achieve, not predictions. - Coordination: Avoid conflicts between departments. - Participation: Involve managers for ownership. - Review Performance: Assess based on budget achievement. ## Benefits And Drawbacks Of Budgets ### Benefits - Sets realistic targets - Measures performance through variance analysis - Identifies strengths and weaknesses - Motivates employees through target setting ### Drawbacks - Lack of flexibility - Short-term focus - Unnecessary spending to justify budgets - Requires extensive training ## Types Of Budgeting - Incremental Budgeting: Adjusts last year's budget based on market conditions. - Zero Budgeting: Starts from zero; all expenses are justified. - Flexible Budgeting: Adjusts budgets according to actual output levels. ## Variance Analysis - Variance: Difference between budgeted and actual figures. - Favourable Variance: Increases profit. - Adverse Variance: Reduces profit. ### Causes - Adverse: Lower revenue, increased costs - Favourable: Higher revenue, reduced costs.