Connect with us

Budgeting Common Terms and Definitions

Terms and definitions for budgeting  in general and capital budgeting are also included here. Check it out.

  • Budget – A formal written statement of management’s plans for a specified future time period, expressed in financial terms.
  • Static budget – A projection of budget data at one level of activity.
  • Participative budgeting – A budgetary approach that starts with input from lower-level managers and works upward so that managers at all levels participate.
  • Flexible budget – A projection of budget data for various levels of activity.
  • Master budget – A set of interrelated budgets that constitutes a plan of action for a specific time period.
  • Financial budgets – Individual budgets that focus primarily on the cash resources needed to fund expected operations and planned capital expenditures.
  • Operating budgets – Individual budgets that result in a budgeted income statement.
  • Budgeted income statement – An estimate of the expected profitability of operations for the budget period.
  • Sales budget – An estimate of expected sales revenue for the budget period.
  • Merchandise purchases budget – The estimated cost of goods to be purchased by a merchandiser to meet expected sales.
  • Production budget – A projection of the units that must be produced to meet anticipated sales.
  • Direct materials budget – An estimate of the quantity and cost of direct materials to be purchased.
  • Direct labor budget – A projection of the quantity and cost of direct labor necessary to meet production requirements.
  • Manufacturing overhead budget – An estimate of expected manufacturing overhead costs for the budget period.
  • Selling and administrative expense budget – A projection of anticipated selling and administrative expenses for the budget period.
  • Budgeted balance sheet – A projection of financial position at the end of the budget period.
  • Cash budget – A projection of anticipated cash flows.
  • Sales forecast – The projection of potential sales for the industry and the company’s expected share of such sales.
  • Budget committee – A group responsible for coordinating the preparation of the budget.
  • Budgetary control – The use of budgets to control operations.
  • Budgetary slack – The amount by which a manager intentionally underestimates budgeted revenues or overestimates budgeted expenses in order to make it easier to achieve budgetary goals.
  • Long-range planning – A formalized process of selecting strategies to achieve long-term goals and developing policies and plans to implement the strategies.

Capital Budgeting Terms and Definitions

  • Capital budgeting – The process of making capital expenditure decisions in business.
  • Cost of capital – The rate of return that management expects to pay on all borrowed and equity funds.
  • Annual rate of return technique – Determines the profitability of a capital expenditure by dividing expected annual net income by the average investment.
  • Cash payback technique – Identifies the time period required to recover the cost of a capital investment from the net annual cash flow produced by the investment.
  • Discounted cash flow technique – Considers both the estimated total net cash flows from the investment and the time value of money.
  • Discount rate – Interest rate used in discounting the future net cash flows.
  • Incremental analysis – The process of identifying the financial data that change under alternative courses of action.
  • Internal rate of return (IRR) – The rate that will cause the present value of the proposed capital expenditure to equal the present value of the expected net annual cash flows.
  • Internal rate of return method – Finds the interest yield of the potential investment.
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Are you looking for easy accounting tutorial? Established since 2007, hosts more than 1300 articles (still growing), and has helped millions accounting student, teacher, junior accountants and small business owners, worldwide.