ACC 202 Ch. 8 Master Budgeting

Benefits from budgeting

1. Budgets communicate managements plans throughout the organization 2. Budgets force managers to think about and plan for the future. IN the absence of the necessity to prepare a budget, many managers would spend all of their time dealing with day-to-day emergencies 3. The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively 4. The budgeting process can uncover potential bottlenecks before they occur 5. Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. Budgeting helps to ensure that everyone in the organization is pulling in the same direction 6. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.

Advantages of self-imposed budgets

1. Individuals at all levels of the organization are recognized as members of the team whose views and judgments are valued by top management 2. Budget estimates prepared by front-line managers are often more accurate and reliable than estimates prepared by top managers who have less intimate knowledge of markets and day-to-day operations. 3. Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above. Self-imposed budgets create commitment. 4. A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet.

Continuous/Perpetual Budget

A 12-month budget that rolls forward one month as the current month is completed

Budget

A detailed plan for the future that is usually expressed in terms of quantitative terms. Budgets are used for 2 distinct purposes: planning and control

Self-Imposed/Participative Budget

A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement. -- Many managers believe that being empowered to create their own budgets is the most effective method of budget preparation

Responsibility Accounting

A system of accountability in which managers are held responsible for those items of revenue and cost--and only those items--over which they can exert significant control. The managers are held responsible for differences between budgeted and actual results.

Planning

The process of establishing goals and specifying how to achieve them

Control

The process of gathering feedback to ensure a plan that is being properly executed or modified as circumstances change