RSM222H1 Chapter Notes - Chapter 9: Income Statement
Document Summary
Week 8: chapter 9: budgeting: master budget: summary of company"s plans in which specific targets are set for sales, production, distribution, administrative, and financing activities. Culminates in cash budget, budgeted income statement, and budgeted balance sheet. Comprehensive financial expression of management"s plans for future: budget serves as planning tool and control tool. Differences between budgeted and actual results: continuous/perpetual budget: 12 month budget that rolls forward one month as current month is completed, budgetary slack: difference between revenue/expenses manager believes can be achieved and amounts included in budget. Revenue intentionally set below expectations, expenses above. To assist in establishing goals, measuring results, identifying areas of need. If budget target too difficult, employees will recognize unattainability and lose morale: inefficiencies arise if budget target too easy, stretch budget: highly difficult to achieve; requires considerable changes to how activities are performed. Challenging but achievable budgets generate greater commitment to budget. Can reduce costs dramatically: require considerable time and effort to prepare.
