IX. Check your grammar.

Put these words into the correct order to form the questions. Answer the resulting questions.

1. are, gains, defined, How?

2. do, When, have, business, a gain?

3. might, a gain, Why, be considered, for one company, revenue, for another?

4. are, recognized, gains, When?

5. based, What, on, is, recognition, of, gains?

6. give, Can, you, examples, events, of, described, a revenue, a gain, and, as?

Unit XVI Managerial Accounting Budgetary Planning

Grammar: Reported Speech

Wordlist

cost accounting	облік виробничих витрат	учет производственных расходов
cost finding	визначення витрат	определение расходов
cost and profit analysis	аналіз очікуваних витрат та прибутків	анализ ожидаемых расходов и прибылей
cost performance	економічна ефективність	экономическая эффективность
division	дивізіон, підрозділ, відділ	дивизион, раздел, отдел
explicit plan	докладний/точний план	подробный/точный план
facilitate	полегшувати, сприяти	облегчать, способствовать
flexible	гнучкий	гибкий
managerial accounting	управлінський облік	управленческий учет
performance	виконування, робота, продуктивність, ефективність	выполнение, работа, производительность, эффективность,
preliminary	попередній	предварительный
respond	реагувати, відповідати	реагировать, отвечать
revise	зміняти, виправляти	изменять, исправлять
solely	тільки, виключно	только, исключительно
schedule	план, графік, програма	план, график, программа
segment	частина, відрізок	часть, отрезок
substantial deviations	істотні відхилення	существенные отклонения
underlie	лежати в основі	лежать в основе
visible	видимий, очевидний	видимый, очевидный

I. Read the text and say what the budgets are prepared for.

The first major component of internal accounting systems for management's use is the company's system for establishing budgetary plans and setting performance standards. The setting of performance standards requires also a system for measuring actual results and reporting differences between actual performance and the plans.

Figure 1: Budget planning and performance reporting.

The simplified diagram in Figure 1 illustrates the interrelationships between these elements. The planning process leads to the establishment of explicit plans, which then are translated into action. The results of these actions are compared with the plans and reported in comparative form. Management can then respond to substantial deviations from plan, e.g. by taking corrective action.

Although plans can be either broad, strategic outlines of the company's future or schedules of the inputs and outputs associated with specific independent programs, most business plans are periodic plans – that is, they refer to company operations for a specified period of time. These periodic plans are summarized in a series of projected, financial statements, or budgets.

The two principal budget statements are the profit plan and the cash forecast. The profit plan is an estimated income statement for the budget period. It summarizes the planned level of selling effort, shown as selling expense, and the results of that effort, shown as "sales revenue and the accompanying cost of goods sold. Separate profit plans are ordinarily prepared for each major segment of the company's operations.

Figure 2: Relationship of company profit plan to responsibility structure.

The details underlying the profit plan are contained in departmental sales and cost budgets, each part identified with the executive or group responsible for carrying out that part. Figure 2 shows the essence of this relationship: the company's profit plan is really the integrated product of the plans of its two major product divisions. The arrows connecting the two divisional plans represent the coordinative communications that tie them together.

Many companies also prepare alternative budgets for operating volumes other than the volume anticipated for the period. A set of such alternative budgets is known as the flexible budget. The practice of flexible budgeting has been adopted widely by factory management to facilitate evaluation of cost performance at different volume levels and has also been extended to other elements of the profit plan.

The second major component of the annual budgetary plan, the cash forecast or cash budget summarizes the anticipated effects on cash of all the company's activities. It lists the expected cash payments, cash receipts, and amount of cash on hand, month by month throughout the year. In most companies, responsibility for cash management rests mainly in the head office rather than at the divisional level. For this reason, divisional cash forecasts tend to be less important than divisional profit plans.