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AUTHORIZE / AUTHORIZATION is to give permission for. For example, a manager authorizes a transaction by signing a voucher authorizing the disbursement.
VISUAL-FIT METHOD is a cost estimation method where an analyst examines a cost by plotting points on a graph (called a scatter diagram) and places a line through the points to yield a cost function. This method is more objective than the account-classification method, but it is still lacking because two cost analysts could (and likely would) visually fit different lines. Such an approach is useful, though, because it helps spot non-representative data points, or outliers.
OPERATING BUDGET focuses on the budgeted income statement and its supporting components and schedules:
1. SALES AND COLLECTIONS BUDGET represents one of the first steps in the budgeting process, as items such as inventory levels and operating expenses are driven off of the Sales and Collections Budget. Effective sales budgeting is a key factor in building a useful and representative financial model for a business. Regardless of the nature of your business (for example, whether it is product or service-based).
2. COST OF GOODS SOLD BUDGET decomposes, or breaks down, the components of a business's cost of goods sold (in some cases referred to as the cost of revenues). This budget breaks out each separate factor underlying the cost of goods sold for a business.
3. INVENTORY AND PURCHASES BUDGET represents what a business plans to buy and how much inventory it intends to hold over a given timeframe, is based on three factors: a business's desired ending inventory, cost of goods sold, and beginning inventory. A business's desired ending inventory will drive that business' budgeted purchases over a given period of time. A larger desired ending inventory will typically lead to a larger Purchases Budget and vice-versa. While the Purchases Budget, a component of the Inventory and Purchases Budget, represents an estimate of future purchases, this is an accrual-based accounting figure, and it is the Disbursements for Purchases Budget (another component of the Inventory and Purchases Budget) that drives a company's cash flows.
4. OPERATING EXPENSES BUDGET forecasts all of the elements of a business' operating expenses, such as salaries, rent, depreciation, and others. Some of these expenses are fixed and some are variable (in other words, based on another metric, such as revenues). While the Operating Expenses Budget represents an estimate of future expenses, this is an accrual-based accounting figure, and it is the Disbursements for Operating Expenses Budget, a component of the Operating Expenses Budget, that drives a company's cash flows.
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