Textbook Notes (363,063)
Canada (158,170)
Accounting (242)
ACCT 2230 (113)
Chapter 9

Chapter 9 Managerial Accounting Notes

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University of Guelph
ACCT 2230
Elliot Currie

Chapter 9 Accounting NotesBudgetingThe basic framework of budgetsBudget a detailed plan for the acquisitionuse of financialother resources over a specified time period Master Budget A summary of the companys plans that sets specific targets for sales production distributionfinancing activities Budgets serve as a planningcontrol tool in organizations Planning involves developing objectivespreparing various budgets to achieve objectives Control involves the steps taken by management to increase likelihood that developed objectiveswill be achieved Budgeting allows time to analyze the situation on paper before consuming the resources necessaryAdvantages of Budgeting1Provide means of communication of managements plans throughout company2Force managers to think about plan for the future3 Provides means of allocating resources to those parts where they will be use most effectively4Uncovers potential bottlenecks machine process etc that limits total output bc it is operating atcapacity before they occur5 Define goalsobjectives and serve as benchmarks for evaluating performanceResponsibility AccountingResponsibility accounting A system of accountability in which managers are held responsible for those items of revenue and cost and only those items over which the manager can exert significant influence Managers are held accountable for differences between budgeted and actual results Manager isnt penalized but should take initiative to correct unfavorable discrepancies Point of system is so nothing falls through the cracksChoosing a Budget Period Operating budgets are ordinarily set to cover a 1year period Many companies divide budget year into 4 quartersPerpetualContinuous Budget A 12 month budget that rolls forward one month as the current month is completedThe Participative Budget The most successful budget programs involve managers with cost control responsibilities in preparing their own budget estimates instead of budget imposed from aboveParticipativeSelfImposed Budget A method of preparing budgets in which managers prepare their own Budget is then reviewed by managers supervisors and any issues are resolved through mutual agreementSome Advantages Individuals at all levels of organization are recognized as members of team with valued views Budget estimates made by frontline managers usually more accurate Motivation is generally higherBefore budgets are accepted they must be carefully reviewed by immediate supervisors If modifications need to be made there needs to be mutual consentBudget Committee A group of key management personnel responsible for overall policy matters related to budget program coordinating the preparation of the budget handling disputes related to the budgetapproving the final budget Members usually consist of president heads of functional areas sales production etcthe controllerUsually though Typically top managers initiate budget process by issuing broad guidelines in terms of overall target salesprofits Lower level managers are directed to prepare budgets that meet targets Motivation can suffer Often budget to tight or too slack bc top management doesnt know best
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