Budgets

• What is a budget?

  A financial plan for future revenues and costs
• What is budgetary control?

  The process of exercising financial control
• How are budgets compared to actual performance?

  To establish any variances
• Who is responsible for controllable costs within budgets?

  Managers
• What must managers do if adverse variances arise?

  Take remedial action if considered excessive
• What are the management uses of budgets?

  • Control income and expenditure
  • Establish priorities and set targets
  • Provide direction and co-ordination
  • Assign responsibilities to budget holders
  • Communicate targets to employees
  • Motivate staff
  • Improve efficiency
  • Monitor performance
• What are the guiding principles for good budgetary control?

  • Clearly defined managerial responsibilities
  • Individual budgets lay down a plan of action
  • Performance monitored against the budget
  • Corrective action for significant differences
  • Approval required for budget departures
  • Investigation of unaccounted variances
• What does an income budget show?

  The planned income over a period of time
• What is another name for an income budget?

  Revenue or sales budget
• What does an expenditure budget show?

  The planned expenditure over a period of time
• What does a profit budget show?

  The planned profit over a period of time
• What does a favourable variance indicate?

  Actual amount made is higher than expected
• What does an adverse variance indicate?

  Making less than expected
• What are the types of budgets mentioned?

  • Income budget
  • Expenditure budget
  • Profit budget