budget setting

Budget 

• a monthly or yearly spending and savings plan for an individual, family, business, or organization
  
• a written document telling the financial institution to pay a specific amount of money from your account to a specific person or organization 
• a card that can be used to borrow money from financial institutions, stores, or other businesses in order to buy products and services on credit
  
• a card that is linked to your checking account so that a person can withdraw money, make deposits, or make purchases at a store 

Why is it important to manage cash in a business?

• Cash is king!

• Cashflows are important as all transactions in a business ultimately end in cash. A business needs cash to meet all commitments and to allow for future expansion.

• A shortage of cash in one month means the business is experiencing financial stress.

2 Main objectives of Accounting are:

• To provide information to interested parties for decision making and to evaluate the performance of the business.

• To provide information to everyone about the business.

• To allow management to make decisions.

True or False: Budgets are a part of the internal controls of a business.

• True

• False

which of the following isn't fixed cost

• Insurance

• Interest expense

• Utilities

• Direct materials

which of the following isn't variable cost

• Direct materials

• Commission

• Rent

• Freight out

Who is responsible for the budget?

• Accountants

• Shareholders

• Investors

• Management

It is important to agree budgets and operate within it because,

Select one option

• Financial resources need to be managed so the organisation can meet its objectives and requirements

• So everything is fair and each gets roughly the same amount

• Managers can borrow from one pot if short in another

• Budgets allow mangers to spend in different areas and the whole amount must be used

Organisations need budgets because,

select two options,

• For planning

• Control and performance evaluation

• Because it looks good for the accountant

• So you can spend all the excess money

When setting budgets it is useful to consider the following,

select two options,

• Historical data

• What individual managers want

• Educated and informed estimations

• Always try to reduce the budget even if you have to make cuts