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BCL Law Notes Irish Management Accounting Theory Notes

Relevant Costing Theory Topic2 Notes

Updated Relevant Costing Theory Topic2 Notes

Irish Management Accounting Theory Notes

Irish Management Accounting Theory

Approximately 17 pages

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The following is a more accessible plain text extract of the PDF sample above, taken from our Irish Management Accounting Theory Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

  • Budgeting is future orientated plan, a plan is a means to an end. There are generally standing budget committees whom operate and convert strategic budgets into operational ones to meet goals of the company and to keep the company profitable in the long run. Generally, these committees are only found in larger organisations.

  • Objectives of Budgeting:

    • Compel planning, so firms need to plan for the future and anticipate any foreseeable problems which might arise.

    • Benchmark performance, responsibility accounting for management.

    • Motivational impetus, setting targets is a form of motivating, giving bonuses also can be motivational.

    • Medium of communication, where employees are aware as to what is required of them in the position they hold.

    • Enhance co-ordination, between different units of the company, to work more efficiently as a full team orientated business.

    • Promote goal congruence, so need for clear goals and then individuals acting to meet these goals.

    • Instil financial awareness, management can realise the financial reprecusions for certain things and can become more aware of how to manage to reduce costs.

  • Master Budget:

    • This budget is a summary of the information contained in the functional budgets (sales production), it is precise and determines a firms structure by the nature of its output.

    • It contains three main elements; cash budget, budgeted profit and loss and the budgeted balance sheet.

  • The Cash Budget:

    • This budget ensures that sufficient cash is available to meet payments and commitments and is an effective use of surplus cash.

    • Non cash items (depreciation/bad debts) do not get entered into this budget and as result it is reliable from a cash only point of view.

    • All cash flows are recorded in this budget, however, you only record a sale in this budget when you know you are receiving the cash, so this budget can be seen to be one of real timing.

  • Budgeted Profit & Loss Account:

    • It is what it says the budgeted profit or loss expected for next year, it considers received payments and payments from the company.

    • It also contains certain non-cash items such as depreciation as it is an expense of running the business along with some provision for bad debts.

    • A distinction here from the cash budget is that statements based on accruals are included are you are expected to receive these payments in the course of business.

  • Budgeted Balance Sheet:

    • This budget can be best seen as an amalagamation of the data compromised in the previous two mentioned budgets along with information from functional budgets which concern purchases, sales and labour etc.

    • Details of fixed assets gets included here also.

    • It is important because it is generally a contrast from the current balance sheet when doing out a budgeted balance sheet and thus, the expected retained profit will be compromised of last year’s actual retained profit plus an estimated retained profit for the year coming.

  • A number of different approaches can be taken however, when it comes to budgeting;

    • Incremental Budgets;

      • These are the most popular budgets used by businesses, it begins with a current budget and is revised to cater for events which occur throughout the year along with the inclusion of anticipated date for the next...

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