Ag Biz Exam 3 ALM

What is a Budget?

• Realistic Model of what management thinks a firm is capable of in a accounting Period

• assists the manager in decision making

• keeps management's attention on the achievement of financial

• increases the chances that financial objectives will be realized

Why do you need a budget?

• Assist the manager in Decision making

• Keeps the management's attention on the achievement of financial Objectives

• Increases the chance that financial objectives will be realized

• Enterprise and operating budgets

What are the types of Budgets

• Enterprise/ Operating Budget

• Cash Flow Budget

• Capital Budget

Enterprise / Operating Budget

• Estimated cost returns and profits.

  It identity more profitable enterprises to be included in the whole farm plan

• Description of the project cash inflow and cash outflow for a business

• Contains only cash transactions

• Depreciation and changes in inventory.

Cash Flow Budget

• Description of the projected cash inflow and cash outflow for a business over a given accounting period

• Contains only Cash Transactions

• Assist the manager in making decisions

• Keeps the management attention.

What would be in a cash flow Budget

• Cash for sales of captial items

• Proceeds from new loans

• Principal Payment on debts

• Depreciation

What would NOT be in a cash flow budget?

• Depreciation

• Changes in inventory

• Sales on Credit

• Principal Payment

Cash Flow Budget should include

• When cash will be received or paid out.

• Purpose of Transaction

• Amount of transaction

• Priority based funds

Capital Expenditure

• Shows how money projected for capital investments is to be allocated among the different divisions

• Activities with the firm during the upcoming time period.

• Maintenance of existing equipment

• Cost savings.

Capital Expenditures are organized by Priority

• TRUE

• FALSE