ACTG 1P11 Lecture Notes - Lecture 21: Historical Cost, National Grange Of The Order Of Patrons Of Husbandry, Accounting
Document Summary
Planning is the process of forecasting future operating activities, whereas budgeting places the plans in financial terms based upon the related revenues and expenses. Control relates to evaluating the plans and budgets in comparison with the actual activities. Except in small organizations, budgeting requires formal planning because of the need to coordinate the budget among various levels of the organization. Advantages of formal planning include: improved communication and coordination, provides a guide to action, and provides a basis for performance evaluation. Advantages of the incremental approach stem from the fact that this approach simplifies the budget process, reduces the time to prepare the budget, focuses on changes from the previous budget or previous actual results, and is easy to implement. The disadvantages include not detecting previous inefficiencies in the budget and a tendency to use the previous budget as a base for the next budget.
