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  • ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All
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* * * * * * * * * Chapter 15 Chapter 15 Budgeting Budgeting and and Controlling Controlling Operations Operations and Taxes and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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Page 1: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Chapter 15Chapter 15

Budgeting and Budgeting and Controlling Controlling Operations Operations and Taxesand Taxes

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Page 2: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Budgeting And Controlling Operations And Taxes

Small Business ControlSmall Business ControlTypes Of BudgetsTypes Of BudgetsObtaining Information Obtaining Information & Ratios & RatiosTaxes & Tax SystemTaxes & Tax SystemRecord Keeping & Tax Record Keeping & Tax ReportingReportingFactors/Problems In Getting Factors/Problems In Getting CreditCredit

Photodisc Collection/Getty Images

15 - 2

Page 3: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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15 - 3McGraw-Hill/Irwin

ControlControl

“…“…the process of the process of ensuring that ensuring that organizational organizational

goals are goals are achieved.”achieved.”

Page 4: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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15 - 4

Control ProcessControl Process1. Setup Standards1. Setup Standards

2. Measure Performance2. Measure Performance

3. Actual vs. Planned3. Actual vs. Planned

4. Deviations Excessive?4. Deviations Excessive?

5. Take Corrective Action5. Take Corrective Action

Page 5: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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15 - 5

Set StandardsSet StandardsUnits Consumer/ProducedUnits Consumer/Produced

oStandard Hours Per UnitStandard Hours Per UnitoMiles Per GallonMiles Per Gallon

Price Paid/Charged- Price Price Paid/Charged- Price Per Unit Per Unit

RequiresRequiresoIntuitionIntuitionoPast PerformancePast PerformanceoMeasurementMeasurementoComparisonComparisonoCommunicationCommunication Keith Brofsky/Getty Images

Page 6: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Effective ControlsEffective ControlsTimelyTimelyCost EffectiveCost EffectiveAccurateAccurateQuantifiableQuantifiableMeasurableMeasurableIndicate Cause/EffectIndicate Cause/EffectResponsibilityResponsibilityAcceptableAcceptable

PhotoDisc Imaging/Getty Images

Page 7: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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BudgetBudget“…“…a detailed statement a detailed statement

of financial results of financial results expected for a given expected for a given

future period.”future period.”

Page 8: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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15 - 8

Types Of BudgetsTypes Of Budgets

CapitalCapital

OperatingOperating

Cash FlowCash Flow Steve Cole/Getty Images

Page 9: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Operating BudgetOperating Budget

•SalesSales

•ProductionProduction

•PersonnelPersonnelRoyalty-Free/CORBIS

Page 10: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Cash Flow BudgetCash Flow Budget$

$

$

$$ Plan Daily/Weekly Cash Plan Daily/Weekly Cash NeedsNeeds

$

$

$

$$ Plan Monthly Cash NeedsPlan Monthly Cash Needs$

$

$

$$ Prepare For Cash Flow CrisisPrepare For Cash Flow Crisis• Establish/Maintain Good CreditEstablish/Maintain Good Credit

• Set Aside Funds To Earn InterestSet Aside Funds To Earn Interest

• Schedule PaymentsSchedule Payments

• Keep Fixed Costs Low & Tie Variable Keep Fixed Costs Low & Tie Variable Costs To RevenueCosts To Revenue

Page 11: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Cash Budget FormatCash Budget Format

BudgetBudget ActualActual

Expected Cash ReceiptsExpected Cash Receipts $$$$$$$$ $$$$$$$$

Expected Cash PaymentsExpected Cash Payments $$$$$$$$ $$$$$$$$

Cash BalancesCash Balances $$$$$$$$ $$$$$$$$

Cash- Capital InvestmentCash- Capital Investment $$$$$$$$ $$$$$$$$

Page 12: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Cash BalanceCash Balance

Beg. Of Month- Balance

+ Total Cash Receipts

- Total Cash Payments

End Of Month- Balance

Page 13: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Budgetary ControlBudgetary Control

“…“…the system of the system of budgets used to budgets used to

control a company’s control a company’s financial activities.”financial activities.”

Page 14: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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15 - 14

Credit, Collections,Credit, Collections,& A/R Control& A/R Control

Identify Slow PayersIdentify Slow Payers

Investigate Customer’s Investigate Customer’s Ability & Willingness Ability & Willingness To Pay To Pay

Monitor Past DueMonitor Past Due

Write-Off UncollectiblesWrite-Off Uncollectibles

Steve Cole/Getty Images

Page 15: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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15 - 15

AuditAudit“…“…a formalized a formalized

examination examination and/or review of a and/or review of a

company’s company’s financial financial records.”records.”

Page 16: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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15 - 16

Types Of AuditsTypes Of Audits

FinancialFinancial

InternalInternal

OperationsOperations

Page 17: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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FeedbackFeedbackObtain InformationObtain Information

oObservationObservation

oOral ReportsOral Reports

oWritten Memos/ReportsWritten Memos/Reports

Compare Actual vs. Compare Actual vs.

StandardsStandardsJacobs Stock Photography/Getty Images

Page 18: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Causes OfCauses OfPoor PerformancePoor Performance

Wrong ObjectivesWrong ObjectivesCustomers Not BuyingCustomers Not BuyingPoor SchedulingPoor SchedulingTheft/SpoilageTheft/SpoilageToo Many EmployeesToo Many EmployeesLost OpportunitiesLost OpportunitiesToo Much Free Too Much Free

Service/DonationsService/Donations

Page 19: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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RatiosRatios

“…“…relationships relationships between two or between two or more variables.more variables.

Page 20: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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RatioRatioComparison ValuesComparison Values

Firm’sFirm’s• Current ValueCurrent Value• Past ValuePast Value

Firm’sFirm’s• Current ValueCurrent Value• Industry ValuesIndustry Values

Can Be InterrelatedCan Be Interrelated

Page 21: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Financial RatiosFinancial Ratios

Page 22: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Profits Satisfactory?Profits Satisfactory?

Net Profit To Net Profit To Owners’ Equity Owners’ Equity

Net Profit To Net Profit To Net Sales Net Sales

Page 23: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Assets Productive?Assets Productive?

Net Sales To Net Sales To Fixed Assets Fixed Assets

Net Sales To Net Sales To Owners’ Equity Owners’ Equity

Ryan McVay/Getty Images

Page 24: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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15 - 24

Debt Payments?Debt Payments?CurrentCurrent

Acid Test (Quick)Acid Test (Quick)

Working CapitalWorking Capital

Accounts Receivable To Accounts Receivable To Working CapitalWorking Capital

Inventory To Working Inventory To Working CapitalCapital

Page 25: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Business Assets?Business Assets?

Collection PeriodCollection Period

Net Sales To Inventory Net Sales To Inventory (Inventory Turnover) (Inventory Turnover)

Net Sales To Working Net Sales To Working Capital Capital

Royalty-Free/CORBIS

Page 26: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Equity Satisfactory?Equity Satisfactory?

Long-Term Liabilities Long-Term Liabilities To Working CapitalTo Working CapitalDebt To Owners’ EquityDebt To Owners’ EquityCurrent Liabilities To Current Liabilities To Owners’ Equity Owners’ EquityFixed Assets To Fixed Assets To Owners’ EquityOwners’ Equity

Page 27: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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U.S. Tax SystemU.S. Tax SystemDetermines Taxes Determines Taxes & Who Will Pay & Who Will Pay

Collection Of TaxesCollection Of Taxes

Internal Revenue Internal Revenue Service- Service- www.irs.ustreas.govwww.irs.ustreas.gov

Page 28: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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TaxesTaxesIndirectIndirect

DirectDirect

Page 29: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Selected Direct TaxesSelected Direct Taxes

Page 30: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Tax EffectsTax EffectsIncome Tax On ProfitsIncome Tax On ProfitsEmployer Withhold/MatchEmployer Withhold/MatchOwner Personal TaxesOwner Personal TaxesTransfer Of OwnershipTransfer Of OwnershipBusiness DecisionsBusiness DecisionsGovernment Administrative Cost Government Administrative Cost

Of CollectionOf Collection

Page 31: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Types Of TaxesTypes Of TaxesExcise/Intangible Excise/Intangible

Property Property

Sales & UseSales & Use

Federal, State, & Federal, State, & Local Income Local Income

S. Meltzer/PhotoLink/Getty Images

Page 32: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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State Sales TaxesState Sales Taxes

Page 33: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Taxable IncomeTaxable Income

“…“…total revenues total revenues minus deductible minus deductible

expenses.”expenses.”

Page 34: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Deductible ExpensesDeductible Expenses

Cost Of Goods SoldCost Of Goods Sold

SellingSelling

AdministrativeAdministrative PhotoDisc/Getty Images

Page 35: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Cost of Goods SoldCost of Goods Sold& Inventory Valuation& Inventory Valuation

First-In, First-Out First-In, First-Out (FIFO) (FIFO)

Last-In, First-Out Last-In, First-Out (LIFO) (LIFO)

Average CostAverage Cost Kim Steele/Getty Images

Page 36: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Employment-Related TaxesEmployment-Related Taxes

Income Tax WithholdingIncome Tax WithholdingSocial Security/MedicareSocial Security/MedicareUnemployment Unemployment

CompensationCompensationoFederal AdministrationFederal Administration

oStateState

Workers’ CompensationWorkers’ Compensation

Page 37: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Owners’ Personal TaxesOwners’ Personal Taxes

Salaries & Bonuses Salaries & Bonuses Withdrawn From CompanyWithdrawn From Company

DividendsDividendsContract For Business Contract For Business

Sale SaleoNoncompete ClauseNoncompete Clause

oSeller Warranties & Seller Warranties & RepresentationsRepresentations

oPurchase PricePurchase Price

Retro Americana

Page 38: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Credit ManagementCredit Management

Decide Method Of Customer Decide Method Of Customer PaymentPaymentCashCashCheck/DebitCheck/DebitCreditCredit

Set Credit Policies & Set Credit Policies & PracticesPracticesAdminister Credit OperationsAdminister Credit Operations

Jack Star/PhotoLink/Getty Images

Page 39: ****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All

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Credit vs. Debit Card UseCredit vs. Debit Card Use

$1.08$0.84

$1.45$1.48

$2.20

$2.60

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

2000 2003 2007

Credit

Debit

Sales Volume (in trillions)Sales Volume (in trillions)


McGraw-Hill/Irwin McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Chapter 11 · Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 2001 Chapter 11 Reporting and Interpreting Owners’ Equity. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc.,

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