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Test 3: Chapter 8
Accounting Chapter 8 Flashcards
19
Accounting
Undergraduate 2
04/23/2012

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Term
Profit planning
Definition
preparing numerous budgets, which, when brought together, form an integrated business plan known as the master budget
Term
Budget
Definition
a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period
Term
Budgeting
Definition
The act of preparing a budget
Term
Budgetary Control
Definition
The use of budgets to control an organizations activities
Term
Planning
Definition
developing objectives and preparing various budgets to achieve those objectives
Term
Control
Definition
the steps taken by management to increase the likelihood that the objectives set down at the planning stage are attained and that all parts of the organization are working together toward that goal.
Term
What do budgets do?
Definition
Communicate managements plans throughout organization.
Force managers to think about and plan for the future.
Allocates resources for max efficiency.
Can uncover potential bottlenecks before they occur.
Coordinate the activities of the whole company by integrating the plans of its various parts.
Define goals and objectives and can serve as benchmarks for evaluating.
Term
Responsibility Accounting
Definition
Managers should be held responsible only for those items that they can control to a significant extent.
Allows organizations to react quickly to deviations and to learn from feedback obtained by comparing actual budget to budget goals.
Term
Operating Budget
Definition
Cover a one-year period corresponding to a company's fiscal year. Many companies divide the annual budget into four quarters.
Term
Continuous/Perpetual Budget
Definition
a 12 month budget that rolls forward one month (or quarter) as the current month/quarter is completed. This approach keeps managers focused on the future at least one year ahead.
Term
Self-Imposed/Participative Budget
Definition
Prepared with the full cooperation and participation of managers at all levels. Particularly useful approach if the budget will be used to evaluate managerial performance
Term
Advantages of self imposed budgets
Definition
1. Individuals at all levels are looked at as members of a team.
2. Front-line managers often have more knowledge of day to day activities than top management
3. Motivation is generally higher when individuals set their own goals
4. Managers cannot claim their budget was unreasonable when they were involved in its planning
Term
Factors to budgetary success
Definition
1. Top management must be enthusiastic and committed to the budgeting process.
2. Top management can not use the budget to pressure or blame employees. This breeds hostility and mistrust.
3. Highly achievable budget targets are preferred.
Term
Budget Committee
Definition
responsible for the overall policy relating to the budget program for coordinating the preparation of the budget, for resolving disputes related to the budget, and for approving the final budget.
Term
Master Budget
Definition
Consists of a number of separate but interdependent budgets
Term
Sales Budget
Definition
shows expected sakes for the budget period expressed in dollars and units. It is usually based on a company's sales forecast. All other parts of the master budget are dependent on the sales budget
Term
Products Budget
Definition
is prepared after the sales budget. It lists the number of units that must be produced during each budget period to meet sales needs and to provide for the desired ending inventory. The production budget directly influences the direct materials/labo and manufacturing overhead budgets, which in turn enable the preparation of the ending finished goods inventory budget.
Term
Selling and Administrative Budget
Definition
A combination of the Sales and Products Budgets that is used to put together the cash budget
Term
Cash Budget
Definition
a detailed plan showing how cash resources will be acquired and used over a time specified period. All of the operating budgets have an impact on the cash budget.
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