Reviewer Compilation (b5 Notebook)
Reviewer Compilation (b5 Notebook)
Reviewer Compilation (b5 Notebook)
NOTES IN BUDGETING
What is a budget?
A plan, expressed in quantitative terms, on how to acquire and use the resources of an
entity during a certain period of time.
o Budget period refers to any future period of time during which the budget is
effective.
Distinguish between profit planning and budgeting.
Enumerate and describe the three commonly used procedures in profit planning.
1) Priori method – The profit objective comes first before the entire planning process.
2) Posteriori method – The profit objective results from the entire planning process.
3) Pragmatic method – Management uses an acceptable profit standard that is based on the
company’s own business experience.
Enumerate and briefly describe some uses/advantages of budgeting.
1) Budgeting compels periodic planning.
- Efficient and effective utilization are the results of forcing the members of the
organization to plan on how to acquire and use the firm’s scarce resources.
2) Budgeting enhances coordination, cooperation and communication.
- It enables different organizational segments to exchange their ideas and objectives,
giving them the opportunity to communicate, coordinate their activities, and cooperate
with each other.
3) Budgeting forces quantification of plans and proposals.
- It compels people to express their plans in terms of pesos and other units of measure to
make them more meaningful and much easier to evaluate.
4) Budgeting provides a framework for performance evaluation.
- Actual results of operations are compared with the budgeted figures to monitor the
organization’s or the organizational segment’s performance and provide feedback
information that is important in developing budgets for the succeeding budget period.
5) Budgeting enables members of the organization to be aware of business costs.
- Managers who are given participation in developing the budget become aware of the
possible cost consequences of their planned activities, thus it allows them to conduct a
cost-benefit analysis of their proposals.
2
SIMILARITIES
Both attempt to predetermine expenses
Both consider departmental expenses according to accounts
Both assume that costs are controllable along direct lines of supervision and responsibility
Both require the issuance of periodic comparative costs reports wherein actual results are
2