ACFI1001 Lecture Notes - Lecture 12: Pro Forma, Financial Statement, Participatory Budgeting
Budgets are plans dealing with the acquisition and use of resources over a specified time period.
Budgets can range from relatively simple personal budgets and time budgets to sophisticated
budgets for multinational companies who use thousands of different materials and manufacture
hundreds of products
The operating cycle:
One of the main reasons why small businesses fail is the lack of adequate planning for cash needs. A
small business that views budgeting for cash as too time consuming or expensive is destined for
failure. Due to computers, even the smallest business can now easily perform analyses required for
successful future plans and budgets.
Budgeting is a management task that requires a great deal of planning and input from a broad range
of managers in a company.
While it is time-consuming, the use of spreadsheets, such as Microsoft Excel, makes the process
much simpler.
Zero-based budgeting:
Zero-based budgets require managers to build budgets from the ground up each year rather than
just add a percentage increase to last years uers. This way managers must justify all items in the
budget, ot just hages fro last years udget.
Rolling budgets:
Although we typically think of budgets as being prepared annually, companies frequently use
monthly budgets and rolling 12-month budgets to provide a mechanism for adjusting items in
response to unforeseen circumstances. As the oldest month rolls off the analysis, the newest month
is added.
Participatory budgeting:
find more resources at oneclass.com
find more resources at oneclass.com
Participatory budgeting starts with departmental managers and then flows up through middle
management and ultimately to top management. At each level, budget estimates are prepared and
then submitted to the next level of management, which has responsibility for reviewing the budget
and negotiating any changes that need to be made.
Participation in the budgeting process is (the focused process of budgeting):
• Guided by a Strategic Plan
• Integrates Individual Budgets
• Motivates Employees to Meet Goals
• Helps Structure Reward Systems
When budgets are used for both planning and control purposes, conflicts invariably arise:
• Maagers who ust eet the udget have incentives to pad it, so targets are easier to
reach.
• Managers with compensation tied to targeted budgets may shift revenues and expenses
across periods.
Advantages of budgeting:
• Compels communication throughout the organisation
• Forces a future focus
• Helps identify bottlenecks (workloads arrive at a given point more quickly than that point can
handle them) and constraints
• Increases coordination and goal congruence
• Defines goals and objectives as standards of performance
Manufacturing Master Budget:
Merchandising Master Budget:
find more resources at oneclass.com
find more resources at oneclass.com
