Summary
Summary FRK122 chapter 8
- Course
- FRK 121 (FRK122)
- Institution
- University Of Pretoria (UP)
FRK122 chapter 8 Notes
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FRK 122CHAPTER 8: BUDGETS:
Introduction
Why prepare a budget?
- A plan for owners, managers and individuals to achieve the goals they
set for an entity during a specific time period.
What tools should be used?
- basic/manual
- software programs
Primary objective: to forecast future financial and non-financial transactions
and events.
ADVANTAGES: DISADVANTAGES:
- Define goals and objectives - Staff needs to be trained to set
- Help communicate plans budgets & manage them
- Help coordinate activities - Challenging to allocate funds fairly and
- Provide the means to allocate in best interests of company
resources - Seldom a long-term plan
- Potential to act as motivation - Possible to reward conservative
- Improve efficiency if used correctly managers and penalise ambitious ones
- Difficult to reconcile personal and
corporate goals
, Planning and control
1. Make sure the budget prepared includes all key indicators to be
controlled
2. Align responsibility to people with authority to control the outcomes
3. Schedule regular reviews of budget performance
4. Identify problems that can be handled in advance
5. Control items that have a big impact on performance
6. Sort out under-performance
The Budgeting Process:
Budget committee
- responsible for overall policy
- can consist from top management down to line management
- review & evaluate all reports
Organisational structure
- small vs large work groups
- establishing areas of responsibility
Budgeting periods
- Annual, quarterly, monthly, …
Setting a budget
1. Set objectives (to achieve targets)
2. Provide information (past, present & future)
3. Make decisions (spend: how much & where)
4. Prepare detailed budgets
5. Prepare the master budget
Master budget
- Summary of entity’s integrated business plan
- Represents a comprehensive expression of management’s plans for the
future and how these plans are to be accomplished
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