From the course: Accounting Foundations

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Budgets: Realistic benchmarks

Budgets: Realistic benchmarks

From the course: Accounting Foundations

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Budgets: Realistic benchmarks

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- Budgeting is another important topic in managerial accounting. Remember that managerial accounting data are detailed data that we use every day inside a business, not the kind of thing that we're going to reveal to people outside. Budgeting is making a systematic, quantitative plan on paper so we can see problems before they arise in the real world. Let's consider a simple example of a cash budget. Okay, it's the end of September and Darold Company has budgeted its cash receipts and cash payments for the next four months. At the end of September, they've got $54,000 cash in the bank, and they are just looking ahead to see what's going to happen in the next few months. In October, their cash receipts are expected to be $10,000, and they are forecasting necessary payments of $50,000. In November, they're again expecting to collect $10,000 and they're expecting to pay $60,000. So October and November are going to be some lean months. Darold Company is going to be paying out a lot more…

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