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CIMA BA2 Notes Chapter 6-Budgeting
CIMA BA2 Notes Chapter 6-Budgeting
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BA 2 - Fundamentals of Management AccountingBudgeting
Chapter six
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BA 2 - Budgeting. Quantia Learning
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A budget is 'a quantitative expression of a plan for a defined period of time' (CIMA terminology).
For example – The budgeted revenue expenditure for the painting department for the year
ended 31st December 2024 is $53,000.
Quantifying of budgets allows:
● a definite target for planning purpose, and
● a yardstick for control purposes
The time period for which a budget is prepared and used is called the budget period. It can be
any length to suit management purposes (weekly/monthly/quarterly/annually).
The purposes of budgeting.
Budgets have several different purposes:
Planning –
Budgets encourage organizations to plan for future operations, anticipate problems, and
minimize hasty decisions. They also help corporate planners convert long-term strategies into
shorter action plans, reducing pressures and thus minimizing hasty decisions.
Control –
The budget serves as a benchmark for monitoring current performance, enabling feedback
control to identify deviations from the plan and take necessary corrective actions to ensure
alignment with the budget.
Co-ordination –
Budgeting helps organizations unite actions into a common plan, guiding managers to make
decisions in the best interest of the organization, while also requiring them to consider their
activities' interrelationships.
BA 2 - Budgeting. Quantia Learning
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Communication –
Top management communicates expectations through the budget to lower-level management,
enabling all members to understand and coordinate their activities to achieve these
expectations.
Motivation –
The budget can be a useful device for influencing managerial behaviour and motivating
managers to perform in line with the organisational objectives.
Performance evaluation –
the budget can be used to evaluate the performance of a manager by measuring their success
in achieving their budgets (which acts as a quantitative reference point).
Authorisation –
budgets act as authority for a manager to spend for various expenditure.
BA 2 - Budgeting. Quantia Learning
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