budget i
TRANSCRIPT
BudgetBudgetand Budgetary and Budgetary ControlControl
Why Corporates Do Why Corporates Do Budgeting?Budgeting?
Goals and Objectives
Budgets
Compels managersto think ahead
Aids managers in coordinating their efforts
Provides definite expectations that are the best framework to evaluate performance
Advantages of BudgetsAdvantages of Budgets
Types of BudgetsTypes of Budgets
Strategic Plan Long-Range Plan
Capital Budget Master Budget
Continuous Budget
Strategic PlanStrategic Plan
The most forward-looking budget is the The most forward-looking budget is the strategic plan, which sets the overall strategic plan, which sets the overall goals and objectives of the organization.goals and objectives of the organization.
Long-Range PlanLong-Range Plan
The strategic plan leads to long-range The strategic plan leads to long-range planning, which produces forecasted planning, which produces forecasted financial statements for five- to ten-year financial statements for five- to ten-year periods.periods.
Capital BudgetCapital Budget
Long-range plans…
are coordinated with capital budgets,which detail the planned expendituresfor facilities, equipment, new products,and other long-term investments.
Master Budget…Master Budget…
summarizes theplanned activitiesof all subunits ofan organization.
Sales
Production
Distribution
Finance
Operating Budget
Financial Budget
Master BudgetMaster Budget
PurchasesBudget____ ________ ________ ________ ________ ____
PurchasesBudget____ ________ ________ ________ ________ ____
Cost ofGoods SoldBudget____ ________ ________ ________ ____
Cost ofGoods SoldBudget____ ________ ________ ________ ____
OperatingExpensesBudget____ ________ ________ ________ ____
OperatingExpensesBudget____ ________ ________ ________ ____
BudgetedIncomeStatement____ ________ ________ ________ ____
BudgetedIncomeStatement____ ________ ________ ________ ____
SalesBudget____ ________ ________ ________ ________ ____
SalesBudget____ ________ ________ ________ ________ ____
InventoryBudget____ ________ ________ ________ ________ ____
InventoryBudget____ ________ ________ ________ ________ ____
Operating Budget
Components of Master Components of Master BudgetBudget
BudgetedBalanceSheet_____ __________ __________ __________ __________ _____
BudgetedBalanceSheet_____ __________ __________ __________ __________ _____
CapitalBudget_____ __________ __________ __________ __________ _____
CapitalBudget_____ __________ __________ __________ __________ _____
CashBudget
_____ __________ __________ __________ __________ _____
CashBudget
_____ __________ __________ __________ __________ _____
Components of Master Components of Master BudgetBudget
FinancialBudget
Operating BudgetOperating Budget
Sales Budget
Purchases Budget
Operating Expenses Budget
Cash collectionsfrom customers
Disbursements for purchases
Disbursements for operating expenses
Cash CollectionsCash Collections
It is easiest to prepare budgeted cash It is easiest to prepare budgeted cash collections at the same time as the sales collections at the same time as the sales budget.budget.
Cash collections include the current Cash collections include the current month’s cash sales plus the previous month’s cash sales plus the previous month’s credit sales.month’s credit sales.
Purchases BudgetPurchases Budget
Budgeted purchases = Desired ending inventory+ Cost of materials to be used for sales – Beginning inventory
Disbursements for Disbursements for PurchasesPurchases
For example, 50% of the current month’s For example, 50% of the current month’s purchases and 50% of the previous purchases and 50% of the previous month’s purchases may be included.month’s purchases may be included.
The total disbursements are then used in The total disbursements are then used in preparing the cash budget.preparing the cash budget.
Operating Expense Operating Expense BudgetBudget
Expenses driven by sales volume include Expenses driven by sales volume include sales commissions and many delivery sales commissions and many delivery expenses.expenses.
Operating Expense Operating Expense BudgetBudget
Other expenses are not influenced by Other expenses are not influenced by sales or other cost-driver activity and are sales or other cost-driver activity and are regarded as fixed, within appropriate regarded as fixed, within appropriate relevant ranges.relevant ranges.
Rent
Insurance
Depreciation
Salaries
Operating Expense Operating Expense DisbursementsDisbursements
Disbursements for Disbursements for operating operating expenses are expenses are based on the based on the operating expense operating expense budget.budget.
Operating Expense Operating Expense DisbursementsDisbursements
For example, 50% of last month’s and For example, 50% of last month’s and this month’s wages and commissions this month’s wages and commissions plus miscellaneous and rent expenses plus miscellaneous and rent expenses may be included.may be included.
The total of these disbursements is then The total of these disbursements is then used in preparing the cash budget.used in preparing the cash budget.
Budgeted Income Budgeted Income StatementStatement
The income statement will be completeafter addition of the interest expense,which is computed after the cash budgethas been prepared.
Budgeted Income Budgeted Income StatementStatement
Budgeted income from operationsis often a benchmark for judgingmanagement performance.