Key Accounting and Budgeting Terms: Definitions
Absorption Costing
A costing method that assigns both variable and fixed costs to products.
Contribution Format
An income statement format that is geared to cost behavior in that costs are separated into variable and fixed categories rather than being separated according to the functions of production, sales, and administration.
Contribution Margin Income Statement
An income statement that separates variable and fixed costs; highlights the contribution margin, which is sales less variable expenses.
Contribution Margin Report
A product’s contribution margin divided by its sale price.
Controllable Costs
Costs that a manager has the power to control or at least strongly influence.
Uncontrollable Costs
Costs that a manager does not have the power to determine or strongly influence.
Variable Costing
A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs; also called direct or marginal costing.
Chapter 20: Budgeting
Budget
A formal statement of future plans, usually expressed in monetary terms.
Budgeted Balance Sheet
An accounting report that presents predicted amounts of the company’s assets, liabilities, and equity balances as of the end of the budget period.
Budgeted Income Statement
An accounting report that presents predicted amounts of the company’s revenues and expenses for the budget period.
Budgeting
The process of planning future business actions and expressing them as formal plans.
Capital Expenditures Budget
A plan that lists dollar amounts to be both received from the disposal of plant assets and spent to purchase plant assets.
Cash Budget
A plan that shows expected cash inflows and outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans.
Continuous Budgeting
The practice of preparing budgets for a selected number of future periods and revising those budgets as each period is completed.
General and Administrative Expense Budget
A plan that shows predicted operating expenses not included in the selling expenses budget.
Master Budget
A comprehensive business plan that includes specific plans for expected sales, product units to be produced, merchandise (or materials) to be purchased, expenses to be incurred, plant assets to be purchased, and amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet.
Merchandise Purchases Budget
A plan that shows the units or costs of merchandise to be purchased by a merchandising company during the budget period.
Rolling Budget
A new set of budgets a firm adds for the next period (with revisions) to replace the ones that have lapsed.
Safety Stock
A quantity of inventory or materials over the minimum needed to satisfy budgeted demand.
Sales Budget
A plan showing the units of goods to be sold or services to be provided; the starting point in the budgeting process for most departments.
Selling Expense Budget
A plan that lists the types and amounts of selling expenses expected in the budget period.