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Daniel Glenday

ACC 406 CHAPTER 9 NOTESBudgetsare financial plans for the future and are a key component of planning They identify objective and the actions needed to achieve them Before a budget is prepared an organization should prepare a strategic plan Strategic planidentifies strategies for future activities and operations generally covering at least five yearsThe organization can translate the overall strategy into long and short term objectives These objectives form the basis of the budget The budget and strategic plan should be tightly linked Advantages of budgetinga budgetary system gives an organization several advantages1 It forces managers to plan2 It provides information that can be used to improve decision making3 It provides a standard for performance evaluation 4 It improves communication and coordination Controlis achieved by comparing actual results with budgeted results on a periodic basis eg monthly A large difference between actual and planned results is feedback revealing that the system is out of control Master Budgetis the comprehensive financial plan for the organization as a whole Typically the master budget is for a oneyear period corresponding to the fiscal year of the companyContinuous Budgetis a moving 12month budget As a month expires in the budget an additional month in the future is added so that the company always has a 12 month plan on hand Budget Committeereviews the budget provides policy guidelines and budgetary goals and resolves differences as the budget is prepared approves the final budget and monitors the actual performance of the organization as the year unfolds Budget Directorusually serves as the person responsible for directing and coordinating the organizations overall budgeting process Operating Budgetsdescribe the income generating activities of a firm sales production and finished goods inventories The ultimate outcome of the operating budgets is a pro forma or budgeted income statementFinancial Budgetsdetail the inflows and outflows of cash and the overall financial position Planned cash inflows and outflows appear in the cash budget The expected financial position at the end of the budget period is shown in a budgeted or pro forma balance sheet Preparing the Operating Budgetthe operating budget consists of a budgeted income statement accompanied by the following support schedules
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