Setting budgets

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  • Created by: hamishc
  • Created on: 19-04-16 22:05
What is a budget?
A forecast future earnings and future spendings over a set period of time.
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What does income budget forecast?
The amount of money that will come into the company as revenue.
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What does the expenditure budget forecast?
What the business's total costs will be for the year.
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What does the profit budget forecast?
The income budget minus the expenditure budget to calculate the expected profit/ loss for the year.
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What are the 5 advantages of budgeting?
Help to achieve targets, helps managers review activities and make decisions, helps to focus on priorities, lets heads of dep delegate to budget holders, help persuade investors a business is successful.
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What are the 5 disadvantages of budgeting?
Can cause resent if departments compete for money, can be restrictive and prevent reaction, can be time consuming, prices may change due to inflation, start-up businesses may be inaccurate and struggle to gather data from other firms.
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What do start-up businesses base their budgets on?
Zero based budgets which means they don't have any pass records to base budgets on.
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What are historical budgets?
Based on a % increase or decrease from last years budget, they are quick and simple, however it assumes conditions stay unchanged, this isn't always the case.
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What are zero based budgets?
Budget holders start with £0, they need approval to spend money on activities, all the years activities must be planned and must justify their needs to the finance director. Can take longer to complete, however can be more accurate.
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What is a fixed budget?
A disciplined, certain budget. Help to control liquidity problems and cash flow, budget holders must keep to budget plans throughout the year, even if conditions change. This can prevent reacting to opportunities or threats.
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What is flexible budgeting?
Budgeting that allows budgets to be altered in response to changes in the market, e.g. zero based budgeting.
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What is a budget holder?
The people responsible for spending or generating the money for each budget.
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Other cards in this set

Card 2

Front

What does income budget forecast?

Back

The amount of money that will come into the company as revenue.

Card 3

Front

What does the expenditure budget forecast?

Back

Preview of the front of card 3

Card 4

Front

What does the profit budget forecast?

Back

Preview of the front of card 4

Card 5

Front

What are the 5 advantages of budgeting?

Back

Preview of the front of card 5
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