What is the master budget?
It is the culmination and the goal of the budgeting process, expressing management’s operating and financial plans for a full year.
It includes budgeted financial statements such as the budgeted balance sheet, income statement, and statement of cash flows.
What is a static budget?
It is prepared for just one planned activity level, based on projections before the period begins.
It does not adjust for actual activity levels during the period.
Define a flexible budget.
It adjusts the master budget amounts to reflect the actual sales volume achieved during the period.
It allows management to focus on variances caused by factors other than volume differences.
What is the purpose of a pro forma financial statement?
This is used for planning and decision-making purposes, often for ‘what if’ analysis.
It is not part of the formal budgeting process and is not used for variance reporting.
What are operating budgets?
- Sales
- Services
- Production
- Purchasing
- Marketing
- Research and Development (R&D)
Operating budgets identify the resources needed to carry out planned activities during the budget period.
What are financial budgets?
- Cash budget
- Budgeted statement of cash flows
- Budgeted balance sheet
- Capital expenditures budget
Financial budgets identify the sources and uses of funds for budgeted operations.
True or False:
The master budget is a pro forma financial statement.
False
The master budget is not a pro forma financial statement; it is a static budget prepared for a specific activity level.
What is zero-based budgeting?
It requires every planned activity to be justified with a cost-benefit analysis, without reference to the current period’s budget.
It can be scheduled on a rotating basis for different departments or divisions.
What is incremental budgeting?
It adjusts the current period’s figures for anticipated changes in the coming period.
It assumes the budget period will be related to the current period.
What is a project budget?
It is for a specific project, covering its entire time span, and must include all costs required for the project.
It is integrated into the master budget for the relevant period or periods.
What is a life-cycle budget?
It plans incomes and expenses for one specific product throughout its entire life cycle.
It enables the company to see cash flows from the product over its entire life.
What factors should be considered when investigating variances?
- Magnitude of the variance
- Trend of the variance over time
- Likelihood of eliminating future occurrences
These factors help determine the cost-benefit of investigating variances.
What is incremental budgeting?
It focuses on changes expected during the coming year, using the current period’s budget as a base with adjustments for changed circumstances.
This approach assumes that the actual results from the current period are acceptable for future periods.
How does zero-based budgeting differ from incremental budgeting?
Zero-based budgeting requires every planned activity to be justified with a cost-benefit analysis, without reference to the current period’s budget or results, unlike incremental budgeting, zero-based budgeting does not assume current period results are acceptable for future periods.
What is a continuous (rolling) budget?
It is prepared for a certain period ahead of the present and is updated regularly, such as monthly, for the next twelve months.
Continuous budgets ensure that planning always covers a full year ahead, adapting to changes as they occur.
What is a key feature of zero-based budgeting?
Every planned activity must be justified with a cost-benefit analysis.
This ensures that all expenditures are necessary and aligned with organizational goals.
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Accounting Foundations & Terminology46
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Recording Transactions & the Accounting Cycle13
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T-Accounts and Journalizing10
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Business Transactions in Practice14
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Trial Balances and Comprehensive Income6
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Subsidiary Ledgers and Revenue Examples24
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Advanced Transactions and Adjusting Entries21
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Adjusted Trial Balance to Year-End Close36
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Financial Statement Types and Elements28
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Statement of Cash Flows18
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Internal Controls18
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Managing Daily Finances45
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Valuing Assets, Liabilities & Equity42
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Revenue Recognition & Income Measurement12
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Financial Statement Analysis8
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Financial Ratios Overview43
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Budgeting Principles and Practices23
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Budgeting Methodologies and Cycles16
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Master Budget & Supporting Schedules24
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Cost Classifications & Costing Systems29
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Manufacturing Overhead and ABC22
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Variance Analysis23
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Performance Measurement & Decision Making27
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Business Ethics & Professional Conduct40
