HMGT 2480 CH 11

Cash Budget

A budget developed to estimate the actual impact on cash balances that will result from a business's operating activities, investing activities, and financing activities.

Long-range Budget

A budget prepared for a period of up to five years.

Annual Budget

A budget prepared yearly.

Flexible Budget

A budget that incorporates the assumptions of the original budget, such as fixed costs and target variable costs per unit or variable cost percentages, and then projects these costs based on varying levels of sales volume.

Capital Budget

A budget used to plan for capital expenditures.

Cash Receipts/ Disbursements Approach to Cash Budgeting

A budgeting approach that sums the anticipated cash receipts and subtracts the anticipated cash payments during a specific accounting period to forecast cash excesses or cash shortages.

Significant Variance

A difference in dollars or percentage between budgeted and actual operating results that warrants further investigation.

Cash Flow

The concept of total cash receipts (cash in) and cash disbursements (cash out) which occurs in a business in a specific accounting period.

Favorable Variance

The difference between planned and actual results that are an improvement on the budget (revenues are higher or expenses are lower).

Unfavorable Variance

The difference between planned and actual results when actual results do not meet budget expectations (revenues are lower or expenses are higher).

Variance

The difference between planned results and actual results.

Capital Expenditure

The expense associated with the purchase of land, property and equipment, and other fixed assets that are recorded on the balance sheet.

Cash Budgeting

The general term used by managerial accountants to identify a variety of cash monitoring and management activities.

Chief Executive Officer (CEO)

The highest ranking officer in charge of the overall management of a company.

Fraud

The intentional use of dishonest methods to take property.

Buddy punching

The method by which an employee uses another's time card to punch that second employee in or out.

Payroll Allocations

The non-wage costs associated with, or allocated to, payroll.

Collusion

The secret cooperation of two or more employees to commit fraud.

Theft

The unlawful taking of a business's property.

Robbery

Theft using force.

Operations Budget

A budget concerned with planning for the revenues, expenses, and profits associated with operating a business.

Accounts Receivable Aging Report

A report used by management to monitor the average length of time money owed to the business has remained uncollected.

Achievement Budget

A short-range budget consisting of a month, a week, or a day.

Undercapitalized

A term used to describe a business that is chronically short of the capital (money) it needs to sustain its operation.

Write-offs

An official declaration that an account receivable is uncollectible.

Horizon

Budget length into the future

Embezzlement

Employee theft.

Line Item

Expense

Budget

Financial plan

Short (cash bank)

Having less money than anticipated in the cashier's bank.

Over (cash bank)

Having more money than anticipated in the cashier's bank.

List and briefly describe three types of budgets, based on length.

• A long-range budget is typically prepared for a period of up to five years. • An annual budget, or yearly budget, is for a one-year period or, in some cases, one season. • An achievement budget, or short-range budget, is always of a limited time period, often consisting of a month, a week, or even a day.

List the goals of an internal control system.

• Ensure accurate financial records keeping. • Restrict unnecessary and potentially detrimental access to the assets of the business. • Confirm, periodically, that those responsible for safeguarding assets can account for them. • Establish appropriate action steps for measuring and addressing variation between the expected and actual performance of those preserving the assets of the business.

List and briefly describe three types of budgets, based on purpose.

• Operations budgets are concerned with planning for the revenues, expenses, and profits associated with operating a business. • Cash budgets are developed to estimate the actual impact on cash balances that will result from operating, investing, and financing activities. • The capital budget is the device used to plan for capital expenditures.

Explain the four steps in the operations budget monitoring process.

• Step 1 Compare actual results to the operations budget. • Step 2 Identify significant variances. • Step 3 Determine causes of variances. • Step 4 Take corrective action or modify the operations budget.