Principles of Accounting: Chapter Twenty-One

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Chapter 21 is about budgeting. The chapter begins with an examination of the importance of budgets to planning and shaping an organization's activities. Budgets also provide a communication and feedback tool. Not to be overlooked are the human dimensions of budgeting. Budgets can be mandated or developed by participative processes. They require estimations and are subject to failings, such as deliberate introduction of slack. Budgeting is sometimes done on an incremental basis by beginning with a prior period plan, but an alternative is zero-based budgeting that requires justification of all expenditures each period.

A comprehensive budget will include many components, but generally begins with planned sales. Sales drive production budgeting, including materials, labor, and overhead. The production budget must interface with the cash budget. The entire process can culminate in budgeted financial statements. Carefully linked electronic spreadsheets prove quite helpful in budgeting, and a comprehensive illustration is shown.

The chapter concludes by discussing budget periods and cycles. Businesses might utilize a continuously updating (perpetual) budget, in lieu of a single static budget that is intended to span well into the future.

Exercises

To aid in your understanding of this chapter, exercises with solutions are available for free download at Bookboon.com. You will find these exercises very helpful in providing models and guidelines for solving all of the problems at principlesofaccounting.com.

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Problems
Goals Achievement
Fill in the Blanks
Multiple Choice
Objectives
Key Terms

Problems: Chapter Twenty-One

Obtain the entire Budgeting/Decision Making Workbook via the linked image at left. Our high volume production process makes this an economical option as compared to printing these files on your own printer!



Basic		Problem	Worksheet	Combined	Objective

	B-21.01				Understanding key terminology relating to budgets

	B-21.02				Scheduling anticipated cash collections

	B-21.03				Planning for production

	B-21.04				Planning for materials purchases

	B-21.05				Scheduling anticipated cash payments

	B-21.06				Direct labor and factory overhead budgeting

	B-21.07				Budgeting of finished goods

	B-21.08				Budgeting for SG&A and volume fluctuation

	B-21.09				Cash budgeting and decision making



Involved		Problem	Worksheet	Combined	Objective

	I-21.01				In-depth cash budgeting

	I-21.02				Comprehensive budget

	I-21.03				Team-based approach to budgeting

	I-21.04				Budget decisions and financial statement results

The preceding table includes links to "Basic" and "Involved" problems. Each link will download the file containing a spreadsheet for the problem and a template worksheet on which you can prepare the solution electronically. If you see a light bulb icon on a worksheet, just mouse over above the icon and a comment box will appear. The comments include useful suggestions for improving your spreadsheet skills.

Solutions to these problems may be obtained from your instructor, however you may not post or redistribute, electronically or otherwise, any such solution material. Solution material may be provided to you for your sole use only, at the discretion of your individual instructor. Violation of this policy constitutes a copyright violation. Alternative problems, with solutions, may be found under the "Exercises" tab within each chapter. Video solutions to selected problems are available to students enrolling in the online course.