Chapter 17

Planning, control and performance: Budgeting

The budget is God.’

Slogan at Japanese Company, Topcom (Economist, 13 January 1996)

Source: The Wiley Book of Business Quotations (1998), p. 90.


Learning Outcomes

After completing this chapter you should be able to:

  • Explain the nature and importance of budgeting.
  • Outline the most important budgets.
  • Prepare the major budgets and a master budget.
  • Discuss the behavioural implications of budgets.

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Chapter Summary

  • The two major branches of cost accounting are costing, and planning, control and performance.
  • Budgeting is a key element of planning, control and performance.
  • Budgets are ways of turning a firm's strategic objectives into practical reality.
  • Most businesses prepare, at the minimum, a cash budget.
  • Large businesses may also prepare a revenue, a trade receivables and a trade payables budget.
  • Manufacturing businesses may prepare a raw materials, a production cost and a finished goods budget.
  • Individual budgets fit into a budgeted income statement and a budgeted statement of financial position.
  • Budgeting has behavioural implications for the motivation of employees.
  • Some behavioural aspects of budgets are spending to budget, padding ...

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