ch21 budgetary planning

8/19/2019 Ch21 Budgetary Planning

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BUDGETARYPLANNING

Accounting , Fifth Edition

21


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Preview of Chapter 21

Accounting

Fifth Edition

Kimmel Weygandt Kieso


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BudgetingAn impot!nt "!n!#$m$nt Too%An impot!nt "!n!#$m$nt Too%


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Planning

Decision

Making

Organizing &

Directing

Controlling

Evaluating

The Work of Management


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9-'

Planning

Decision

Making

Organizing &

Directing

Controlling

Evaluating


Initiate LT &

ST Plans

Implement

Plans

Measure

Performance

Evaluate

PerformanceDecisionDecision

MakingMaking

LT = Long Term

ST = Sort Term


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9-(

Planning

Decision

Making

Organizing &

Directing

Controlling

Evaluating


Initiate LT &

ST Plans

Implement

Plans

Measure

Performance

Evaluate

Performance

Decision

Making

Planning

Planning -- involves

developing objectives andpreparing various budgets

to achieve these objectives.LT = Long Term

ST = Sort Term


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9-)

Planning

Decision

Making

Organizing &

Directing

Controlling

Evaluating


Initiate LT &

ST Plans

Implement

Plans

Measure

Performance

Evaluate

Performance

Decision

Making

Control

Control involves the

steps taken by managementthat attempt to ensure the

objectives are attained.


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Decision

Making

Measure

Performance

Implement

Plans

Initiate LT &

ST Plans

Evaluate

Performance


B*d#$t+

Initiate LT &

ST Plans

LT = Long Term

ST = Sort Term


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Evaluate

Performance

Decision

Making

Planning

Decision

Making

Evaluate

Performance

Measure

Performance


Implement

Plans

Implement

Plans

Tho*#h. th$

/*d#$t


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Evaluate

Performance

Decision

Making

Planning

Decision

Making

Evaluate

Performance

Measure

Performance


Implement

Plans

Measure

Performance

A00odin#.

to th$ B*d#$t


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Planning

Decision

Making

Organizing &

Directing

Controlling

Evaluating


Initiate LT &

ST Plans

Implement

Plans

Measure

Performance

Evaluate

Performance

Decision

Making

LT = Long Term

ST = Sort Term


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A Budget is . . .A Budget is . . .Budget: a formal written statement of management’s plans for

a specified future time period, expressed in financial terms.

Primary method of communicating agreed-upon objectives

throughout the organization.

Promotes efficiency.

Control device - important basis for performance evaluation

once adopted.


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Historical accounting data on revenues, costs, andexpenses help in formulating future budgets.

Accountants normally responsible for presenting

management’s budgeting goals in financial terms.

The budget and its administration are the responsibility

of management.

Budgeting and Accounting

LO 1


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Primary benefits of budgeting

!."e#uires all levels of management to plan ahead.

$.Provides definite objectives for evaluating performance.

%.&reates an early warning system for potential problems.

'.(acilitates coordination of activities within the business.

)."esults in greater management awareness of the entity’s

overall operations.

*.+t motivates personnel throughout organization to meet

planned objectives.

The Benefits of Budgeting

LO 1


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The Benefits ofThe Benefits of Budgeting Budgeting

Ad!nt!#$+

D$fin$ o/$0ti$+

m!n!#$m$nt !!$n$++

oodin!t$

!0tiiti$+

E!%5 !nin# 65+t$m p%!n ! h$!d

moti!t$+ p$+onn$%


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ay be prepared for any period of time.

► ost common - one year.

► upplement with monthly and #uarterly budgets.

► ifferent budgets may cover different time periods.

ong enough to provide an attainable goal and

minimize seasonal or cyclical fluctuations.

!hort enough for reliable estimates.

"#$TH %& TH" B'($"T P")*%(

"ssentials of "ffective Budgeting

LO 1


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NowNow

5 Years5 Years

1 Year1 Year

ost common


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/ase budget goals on past performance

► &ollect data from organizational units.

► /egin several months before end of current year.

evelop budget within the framewor0 of a sales

forecast.

► hows potential industry sales.

► hows company’s expected share.

TH" B'($"T*#$ P)%C"!!

"ssentials of "ffective Budgeting

LO 1


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Impo+$dImpo+$d /*d#$t/*d#$tTop-don. !ppo!0hTop-don. !ppo!0h

P!ti0ip!tP!ti0ip!t

i$ B*d#$ti$ B*d#$t

Bottom to top. !ppo!0hBottom to top. !ppo!0h

Vs.

Budgets . .Budgets . . ..


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Imposed Budgets VersusParticipative Budgets

Impo+$d

B*d#$t+


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In +t!t-*p o#!ni7!tion+In +t!t-*p o#!ni7!tion+In +m!%% /*+in$++$+In +m!%% /*+in$++$+

In tim$+ of $0onomi0 0i+$+In tim$+ of $0onomi0 0i+$+

8h$n op$!tin# m!n!#$+8h$n op$!tin# m!n!#$+

%!0 /*d#$t!5 +i%%+ o%!0 /*d#$t!5 +i%%+ op$+p$0ti$:p$+p$0ti$:

Best Time to Use . . .. .


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R$;*i$+ %$++ tim$:R$;*i$+ %$++ tim$:Uti%i7$ top m!n!#$m$nt


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Disadvantages . . .

R$d*0$ f$$%in# of t$!mo:R$d*0$ f$$%in# of t$!mo:Di++!ti+f!0tion !nd %o mo!%$:Di++!ti+f!0tion !nd %o mo!%$:

Limit$d !00$pt!n0$ of +t!t$d #o!%+Limit$d !00$pt!n0$ of +t!t$d #o!%+!nd o/$0ti$+:!nd o/$0ti$+:

"!5 +t"!5 +topop initi!ti$ of %o$ %$$%initi!ti$ of %o$ %$$%m!n!#$+:m!n!#$+:


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Imposed Budgets VersusParticipative Budgets

P!ti0ip!ti$

B*d#$t+


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Best Time to UseBest Time to Use . . .. . .

In $%%-$+t!/%i+h$d o#!ni7!tion+:In $%%-$+t!/%i+h$d o#!ni7!tion+:In %!#$ /*+in$++$+:In %!#$ /*+in$++$+:

In tim$+ of $0onomi0In tim$+ of $0onomi0 i+ #oin#i+ #oin#::

8h$n op$!tin# m!n!#$+ h!$8h$n op$!tin# m!n!#$+ h!$

+ton# /*d#$t!5 +i%%++ton# /*d#$t!5 +i%%+

!nd p$+p$0ti$+:!nd p$+p$0ti$+:


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Advantages . . .Advantages . . .

=/t!in infom!tion fom tho+$=/t!in infom!tion fom tho+$p$+on+ mo+t f!mi%i! ith th$p$+on+ mo+t f!mi%i! ith th$

n$$d+ !nd 0on+t!int+ of th$n$$d+ !nd 0on+t!int+ of th$

o#!ni7!tion!% *nit+:o#!ni7!tion!% *nit+:L$!d+ to /$tt$ mo!%$ !nd hi#h$L$!d+ to /$tt$ mo!%$ !nd hi#h$

moti!tion:moti!tion:


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Advantages . . .Advantages . . .

D$$%op ! hi#h d$#$$ ofD$$%op ! hi#h d$#$$ of!00$pt!n0$ of !nd 0ommitm$nt to!00$pt!n0$ of !nd 0ommitm$nt to

o#!ni7!tion!% #o!%+ !nd o/$0ti$+o#!ni7!tion!% #o!%+ !nd o/$0ti$+

/5 op$!tin# m!n!#$m$nt:/5 op$!tin# m!n!#$m$nt:A$ #$n$!%%5 mo$ $!%i+ti0:A$ #$n$!%%5 mo$ $!%i+ti0:


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Disadvantages . . .Disadvantages . . .

R$;*i$ +i#nifi0!nt%5 mo$ tim$:R$;*i$ +i#nifi0!nt%5 mo$ tim$:"!5 moti!t$ m!n!#$+ to"!5 moti!t$ m!n!#$+ to

intod*0$ +%!0. into th$ /*d#$t:intod*0$ +%!0. into th$ /*d#$t:B*d#$t!5 +%!0B*d#$t!5 +%!0 o00*+ h$n m!n!#$+ int$ntion!%%5o00*+ h$n m!n!#$+ int$ntion!%%5 *nd$$+tim!t$ /*d*nd$$+tim!t$ /*d##$t$d $$n*$+$t$d $$n*$+

o o$$+tim!t$ /*d#$t$d $>p$n+$+o o$$+tim!t$ /*d#$t$d $>p$n+$+

in od$ to m!$ it $!+i$ to !0hi$$ /*d#$t!5 #o!%+:in od$ to m!$ it $!+i$ to !0hi$$ /*d#$t!5 #o!%+:

To minimi7$ /*d#$t!5 +%!0, hi#h$-%$$% m!n!#$+ m*+tTo minimi7$ /*d#$t!5 +%!0, hi#h$-%$$% m!n!#$+ m*+t0!$f*%%5 $i$ !nd thoo*#h%5 ;*$+tion th$ /*d#$t0!$f*%%5 $i$ !nd thoo*#h%5 ;*$+tion th$ /*d#$t

po$0tion+ poid$d to th$m /5 $mp%o5$$+ hom th$5po$0tion+ poid$d to th$m /5 $mp%o5$$+ hom th$5

+*p$i+$:+*p$i+$:


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et of interrelated budgets that constitutes a plan ofaction for a specified time period.

&ontains two classes of budgets

► %perating budgets.

► &inancial budgets.

+ndividual budgets that resultin the preparation of the

budgeted income statement

1 establish goals for sales

and production personnel.

The +aster Budget

LO 1


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et of interrelated budgets that constitutes a plan ofaction for a specified time period.

&ontains two classes of budgets

► %perating budgets.

► &inancial budgets.

The +aster Budget

The capital expendituresbudget, the cash budget,

and the budgeted balance

sheet 1 focus primarily on

cash needs to fund

operations and capital

expenditures.

LO 1


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Te Master !u"get

Sales !u"get

Pro"uction

!u"get

DL !u"get

S E$p !u"get

Cas !u"get

DM !u"get

Capital

E$pen"iture

! " t

M% Overea"

!u"get

!u"gete"

!alance Seet

!u"gete" Income Statement

ch21 budgetary planning

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