JOSIE D. ALBAODOST V-PMU

Financial Assumptions Financial Projections Return on Investment

Partial Budget Analysis

Financial Accounting Information

- a means to an end

- historical in nature

- results from inexact and approximate measures of business activity

- approximate measures of business activity

- based on general-purpose assumption

Objectives of Financial Accounting Information for External Parties

Provide information useful to the enterprise in:

- making investment and credit decisions

- assessing amount, timing, and uncertainty

of future cash flows

- Learning about enterprise's economic

resources, claims to resources, and

changes in claims to resources

Objectives of Financial Accounting Information for Internal Parties

Provide information useful to the enterprise

in:

- achieving its goals, objectives and mission

- assessing past performance and future

directions

- evaluating and rewarding decision-making

performance

Financial Statement

- A monetary declaration of what is believed to be true about the business

- describes in financial terms certain attributes of the enterprise that fairly represent its financial activities

- prepared at least annually

Primary Financial Statements

1. Statement of financial position (balance sheet)

- a position statement that shows where the

enterprise stands at a specific date

- snapshot of a business in financial terms

Assets = Liabilities + Owner’s Equity

Balance Sheet

Three (3) sections:

1. Assets

- economic resources owned by firm &

expected to benefit future operations

2. Liabilities

- financial obligations or debts

3. Owner’s Equity

- owner’s claims on the assets of the business

Primary Financial Statements

2. Income Statement

- is an activity statement that shows

the revenues and expenses for a

designated period of time (year,

quarter, month)

Revenue – Expenses = Net Income

Primary Financial Statements

3. Statement of cash flows

- an activity statement that shows the

details of the enterprise's activities

involving cash during a period of time

- important in understanding an

enterprise for purposes of investment

and credit decisions

Cash Flow

Classified into 3 sections:

1. Cash flows from operating activities

2. Cash flows from investing activities

3. Cash flows from financing activities

Audits of Financial Statements

Audit is an investigation of a firm's financial statements, designed to determine the fairness of these statements.

Accountants and auditors use the term “fair” in describing financial statements that are reliable and complete, conform to generally accepted accounting principles, and are not misleading.

Financial Reporting Timeline

Time

Statement ofFinancial Position/Balance sheet

Date at beginningof period

Date at endof period

Income StatementStatement of cash flows

Statement ofFinancial Position/Balance sheet

The balance sheet, income statement, and statement of cash flows relate closely to each other.

Assets

Cash 16,600.00

Accounts Receivable

1,200.00

Property, Plant, Equipment

100,000.00

117,800.00

Liabilities

Notes Payable 30,000.00

Accounts Payable 7,000.00

Owner's equity

Capital stock 80,000.00

Retained earnings 800.00

117,800.00

Balance Sheet

Revenues 2,200.00

Expenses 1,400.00

Net Income 800.00

Income Statement

Operating Activities 800.00

Investing Activities (64,000.00)

Financing Activities 80,000.00

Change in cash 16,600.00

Beginning cash balance

0

Ending cash balance 16,600.00

Statement of cash flows

Financial Reporting and Financial Statements

Statement of cash flows

Balance Sheet

Income Statement

Other Information:

*Industry*Competitors*National Economy

Master Budget = Financial Projections

Master Budget is

Why do we prepare an MB?

Components of a Master Budget

1. Operating Budgets

a. Sales Budget

b. Production budgets including:

- units to produce

- direct materials

- direct labor

- overhead

c. Cost of goods manufactured and sold budget

d. Selling & Administrative expense budget

d. Selling & Administrative expense budget

- marketing

- administrative expenses

- research and development

e. Cash Budget

f. Financial Budgets

- Budgeted income statement

- Budgeted balance sheet

- Budgeted cash flow statement

- Capital expenditures budget

How to prepare the Master Budget/

Financial Projections

Steps in preparing the Master Budget

1. Prepare a sales forecast

2. Prepare budgets for production, manufacturing costs, and operating expenses

3. Prepare a budgeted income statement

4. Prepare a cash budget

5. Prepare a budgeted balance sheet