Chapter 6, Problem 6.1Q

What are the four elements of the budgeting cycle?

To determine

Budget Cycle:

The budget cycle refers to the whole time period starting from the creation of the budget to the evaluation of the budget. This budgeting cycle is generally applicable for the government budgets as well as the budgets of big companies.

To explain: The four elements of budgeting cycle.

Answer to Problem 6.1Q

The four elements of the budgeting cycle are as follows:

• Expectations of management: The performance of the company as well as the sub-units of the company should be planned as per the expectations of the management.
• Performance component: The standards in the budget should be set according to the expectations of the management so that the comparison with actual results is easy. The comparison of results helps in analyzing the component of performance.
• Analysis of variances: The variations of actual performance from the budgeted performance should be analyzed and the actions for correction should be taken.
• Feedback: The feedback which is necessary should be obtained so that the plan can be improved as per the requirements.

Explanation of Solution

• The budget is a statement in which an estimated standard is set and the management tries to achieve that so that the objectives are met.
• The budgeting cycle is that cycle or process which starts from the creation of a budget and ends with the evaluation of the budget.
• There are some necessary elements of a budgeting cycle which are the expectations of the management, the performance component, the analysis of variances and the feedback.
• The budgeting cycle is very useful for big companies as the whole process can be analyzed.
• The small companies mention the budgeting cycle as the budgeting process.

Conclusion

Thus, the four necessary elements of the budgeting cycle are expectations of the management, the performance component, the analysis of variances and the feedback.