Accounting, 3rd Edition

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.

Go online to discover the extra features for this chapter at www.wiley.com/college/jones

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 ...