BUDGETS AND
BUDGETARY CONTROL
DEFINITIONS:
FORECAST: A prediction of the results of
carrying on business over a future period of time, and of the position of the
business at the end of that time if present and, as far as they are known,
future conditions and trends are allowed to continue without management
intervention.
BUDGET: A statement in money terms
of management’s plans for operating a business over a future period of time and
their plans for the position of the business at the end of that time.
MASTER
BUDGET: A profit and loss account
and balance sheet based upon the operating budgets. Often referred to as “forecast income statements and balance sheets”.
BUDGET
PERIODS: The period for which a
budget is prepared, commonly for one year, but it will depend upon the
particular business.
BUDGETARY
CONTROL: The use of budgets to monitor
the performance of managers against their functional budgets. The system allows
for the continuous comparison of actual with budgeted results at frequent
intervals so that corrective action may be taken when necessary.
SALES
BUDGET: Based upon the forecast
demand for the goods. The forecast will be based upon market research,
salesmen’s reports and other trade information sources. It will be expressed in
sales volumes.
PRODUCTION
BUDGET: This is a budget for the
production of finished goods.
CASH
BUDGET: This is a budget for the
cash flow of a business. These are prepared on a cash and not accruals basis.
PURCHASES
BUDGETS: Budgets for the purchases of
supplies of materials. The information needed will be compiled from production
budgets.
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