Budget i

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  • 1. BudgetBudget and Budgetaryand Budgetary ControlControl
  • 2. Why Corporates DoWhy Corporates Do Budgeting?Budgeting? Goals and Objectives Budgets
  • 3. Compels managers to think ahead Aids managers in coordinating their efforts Provides definite expectations that are the best framework to evaluate performance Advantages of BudgetsAdvantages of Budgets
  • 4. Types of BudgetsTypes of Budgets Strategic Plan Long-Range Plan Capital Budget Master Budget Continuous Budget
  • 5. Strategic PlanStrategic Plan  The most forward-looking budget is theThe most forward-looking budget is the strategic plan, which sets the overallstrategic plan, which sets the overall goals and objectives of the organization.goals and objectives of the organization.
  • 6. Long-Range PlanLong-Range Plan  The strategic plan leads to long-rangeThe strategic plan leads to long-range planning, which produces forecastedplanning, which produces forecasted financial statements for five- to ten-yearfinancial statements for five- to ten-year periods.periods.
  • 7. Capital BudgetCapital Budget Long-range plans… are coordinated with capital budgets, which detail the planned expenditures for facilities, equipment, new products, and other long-term investments.
  • 8. Master Budget…Master Budget… summarizes the planned activities of all subunits of an organization. Sales Production Distribution Finance
  • 9. Operating Budget Financial Budget Master BudgetMaster Budget
  • 10. Purchases Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Purchases Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Cost of Goods Sold Budget ____ ____ ____ ____ ____ ____ ____ ____ Cost of Goods Sold Budget ____ ____ ____ ____ ____ ____ ____ ____ Operating Expenses Budget ____ ____ ____ ____ ____ ____ ____ ____ Operating Expenses Budget ____ ____ ____ ____ ____ ____ ____ ____ Budgeted Income Statement ____ ____ ____ ____ ____ ____ ____ ____ Budgeted Income Statement ____ ____ ____ ____ ____ ____ ____ ____ Sales Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Sales Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Inventory Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Inventory Budget ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ Operating Budget Components of MasterComponents of Master BudgetBudget
  • 11. Budgeted Balance Sheet _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Budgeted Balance Sheet _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Capital Budget _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Capital Budget _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Cash Budget _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Cash Budget _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ Components of MasterComponents of Master BudgetBudget Financial Budget
  • 12. Operating BudgetOperating Budget Sales Budget Purchases Budget Operating Expenses Budget Cash collections from customers Disbursements for purchases Disbursements for operating expenses
  • 13. Cash CollectionsCash Collections  It is easiest to prepare budgeted cashIt is easiest to prepare budgeted cash collections at the same time as the salescollections at the same time as the sales budget.budget.  Cash collections include the currentCash collections include the current month’s cash sales plus the previousmonth’s cash sales plus the previous month’s credit sales.month’s credit sales.
  • 14. Purchases BudgetPurchases Budget Budgeted purchases = Desired ending inventory + Cost of materials to be used for sales – Beginning inventory
  • 15. Disbursements forDisbursements for PurchasesPurchases  For example, 50% of the current month’sFor example, 50% of the current month’s purchases and 50% of the previouspurchases and 50% of the previous month’s purchases may be included.month’s purchases may be included.  The total disbursements are then used inThe total disbursements are then used in preparing the cash budget.preparing the cash budget.
  • 16. Operating ExpenseOperating Expense BudgetBudget  Expenses driven by sales volume includeExpenses driven by sales volume include sales commissions and many deliverysales commissions and many delivery expenses.expenses.
  • 17. Operating ExpenseOperating Expense BudgetBudget  Other expenses are not influenced byOther expenses are not influenced by sales or other cost-driver activity and aresales or other cost-driver activity and are regarded as fixed, within appropriateregarded as fixed, within appropriate relevant ranges.relevant ranges. Rent Insurance Depreciation Salaries
  • 18. Operating ExpenseOperating Expense DisbursementsDisbursements  Disbursements forDisbursements for operatingoperating expenses areexpenses are based on thebased on the operating expenseoperating expense budget.budget.
  • 19. Operating ExpenseOperating Expense DisbursementsDisbursements  For example, 50% of last month’s andFor example, 50% of last month’s and this month’s wages and commissionsthis month’s wages and commissions plus miscellaneous and rent expensesplus miscellaneous and rent expenses may be included.may be included.  The total of these disbursements is thenThe total of these disbursements is then used in preparing the cash budget.used in preparing the cash budget.
  • 20. Budgeted IncomeBudgeted Income StatementStatement The income statement will be complete after addition of the interest expense, which is computed after the cash budget has been prepared.
  • 21. Budgeted IncomeBudgeted Income StatementStatement Budgeted income from operations is often a benchmark for judging management performance.