notes 01

• Budgeting Process


  1. Budget Preparation

  2. Budget Approval

  3. Budget Communication

  4. Budget Implementation

  5. Budget Monitoring
• Top-Down Approach


  Management makes the budget then impose it downwards
• Bottom-Up Approach


  All departments list their anticipated expenses in order to make the budget subject to approval of the top management
• Bottom-Up Approach is used for better management acceptance
• Budget Slack


  Intentional manipulation of the amounts input in the budget wherein the budget creator may overestimate expenses or underestimate revenues
• Budget Committee


  Reviews and approves budget
• Budget Manual


  Guide of the lower & middle management on how to implement the approved budget
• Budget Monitoring


  Comparing the actual amounts to budgeted amounts in order to see whether the results are favorable or unfavorable
• Budget Report


  Usually made monthly to properly facilitate the monitoring functions
• Static Budget


  Fixed budget
• Flexible Budget


  Adjusts if there is material of significant difference between the actual and budgeted level of activity
• Concept of cost behavior

  Used in flexible budgeting
• Incremental Budgeting


  Most basic and simple methodology, use the prior year amount and adjust it based on a % increase or decrease estimated by management for the current period
• Rolling/Continuous Budgeting


  Gradually extend the current year's budget by adding a new budgeting period as the previous period expires
• Activity-Based Budgeting


  Company must use Activity-Based Costing, creating budget is based on activity
• Life-Cycle Budgeting


  1. Introductory Stage

  2. Growth & Expansion Stage

  3. Maturity Stage

  4. Declining Stage
• Zero-Based Budgeting


  The budget creator assumes that as if it is the first time on creating a budget by mandating a fresh evaluation of all expenses during each budgeting cycle, all expenses must be justified for each new period in order to create prioritization
• Kaizen Budgeting


  Kaizen means "continuous improvement", preparing the budget with an aim to continuously reduce costs through efficiency improvements
• Master Budget


  Consolidation of all the financial estimates that the company prepared during a certain period, 3 sections: Operating Budget, Financial Budget, Capital Budget
• Cash Budget


  Includes Cash Receipts (Inflow), Cash Disbursements (Outflow), Net Change in Cash, Beginning Balance, Ending Balance, Minimum Cash Balance, Cash Available for Investment/(Requires Financing)
• Minimum Cash Balance


  Minimum amount of cash needed to operate the business for the next period
• Financing


  When minimum cash balance is not sufficient to operate the business for the next period, additional financing is required