unit 19: budgets

Question 1

define a budget

Answer 1

• short-term financial plan used as a guide to achieve the predetermined targets.
• a comprehensive and coordinated plan, expressed in financial terms, for the operations and resources of an enterprise for some specific period in the future

Question 2

explain the uses of the budget

Answer 2

• to control income and expenditure
• to establish priorities and set targets
• provide direction and coordination so business objectives can be tunred into practical reality
• assign responsibitlies to budget holders (managers) and control resources

Question 3

explain the control function of budgets

Answer 3

• budgetary control is the means by which management exercises control over the business plans
• also the financial terminology for managing income and expenditure
• in practice, it means regularly comparing ctual income or expenditure to planned income or expenditure to identify whether or not corrective measuer is required

Question 4

list advantages of budgetary control

Answer 4

• management can compare if the actual performance is line with what is reflected in the budget
• corrective measure can be taken if there were a lot of deviations from the budget
• possible cash flow problems can be looked at and avoided
• improves the allocation of scarce resources
• motivates employees by participating in the setting of budgets

Question 5

explain the prupose of a sales budget

Answer 5

• sales budget= a financial plan which shows how resources should be allocated to achieve forecasted sales
  purpose
• to plan for maximum utilization of resources and forecast sales
• MO: it’s a detailed schedule used to show the xpected sales for the coming months
• enables the business to plan on how customer demands can be met based on past sales info.

Question 6

define a cash budget

Answer 6

a company’s estimation of cash inflows and outflows

Question 7

list for transactions that aren’t a flow of funds, therefore shouldn’t be entered in a cash budgtet

Answer 7

• depreciation
• cash or trade discount
• bad debts
• profit or loss on sale of asset