The document discusses budgeting, including its components, process of preparation, and reasons for creating budgets. It defines budgeting as the process of planning, implementing, and controlling budgets to allocate scarce resources. The master budget combines individual budgets for operations, financial resources, capital expenditures, and projected financial ratios. It is created through a process where department heads submit budgets based on sales projections, which are then consolidated into a draft master budget and revised for final approval.

1. BUDGETING
Reasons
Manuals
Master Budget
• C o m p o n e n t s
• P ro c e s s o f P re p a ra t i o n

2. LET’S GO!
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3. WHAT IS
BUDGETING?
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4. BUDGETING
D E F I N I T I O N
• Budgeting is the process of designing, implementing and
operating budgets. It is the managerial process
of budget planning and preparation, budgetary control and
the related procedures. Budgeting is the highest level of
accounting in terms of future which indicates a definite
course of action and not merely reporting.
• Budget is a tool that managers use to plan and control the
use of scarce resources.
• Barometer
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5. • Adjustments in the budget may also be done depending on the results
of the evaluation.
• Usually prepared for one year.
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6. ROLLING BUDGET
when a company makes a whole year
budget then makes new budgets on a
monthly budget or quarterly basis
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EXAMPLE
The company creates a budget for
January to December 31, 2015, on
December 2014 the company
begins to prepare a budget for
January to March 2015, then on
March 2015, the company starts to
prepare a budget for the next
quarter April to June 2015, and so
on.

7. REASONS
Planning
• Profit Generation
• helps management in paving
(planning) the way to achieve the
desire profit
Control
• Adjustments may be done if needed
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Coordination
• Synchronize the firm’s operations
• Serves as a guide as to what the
company should achieve

8. BUDGET MANUALS
1. Objectives
2. Definition of Authority
3. Responsibilities and duties of
persons involved in preparing
the budget
4. Procedure of budgetary control
5. Time schedule for preparing
the budget
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6. Forms of schedules
7. Procedures in obtaining budget
approval
8. Form and nature of
performance report
9. Advantages of budgetary
control

9. budgets are then fused
to form one company-
wide budget
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10. 10
COMPONENTS
Operations
Budget/Profit Plan
Financial Resource
Budget
Capital Expenditures
Budget
Budgeted Financial
Ratios
Sales Cash budget
Material modification,
acquisition, and disposal of
property, plant, and
equipment
The ratios are taken from
the pro-forma or
budgeted financial
statements prepared.
These are similar to the
ones discussed in Chapter
3 and 4. The only
difference is that the
figures here are estimated
and budgeted
Production Volume
Pro-forma or budgeted Statement
of Financial Position (SFP)
Cost of raw materials, direct labor,
and cost of goods sold
Projected funds flow statement
Number of raw materials units to be
purchased
Material modification, and
acquisition or renewal of a
firm’s computerized
accounting information
system
Factory overheard
Inventory levels
Selling and Administrative Expenses
Financing charges
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11. PROCESS OF
PREPARATION
1. The top management
formulates the corporate
objectives, plans, policies, and
assumptions, which will give
direction in the formulation of
the budget estimates.
2. Establish or estimate sales
projection or targeted sales.
This will serves as a basis in
determining the targeted
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number of units (volume) to be sold.
3. Heads or supervisors of different
functional areas prepare individual
budgets for their respective areas
as well as sub-units or
responsibility centers of the
company based on the planned
volume of units to be sold. Under
this process, the production
schedule and the associated use of
new raw materials, direct labor,
and overheard are done to
compute cost of goods sold.

12. 4. The corporate planning
department of a firm
consolidates the individual
budgets to create a draft
master budget.
5. Revisions of the preliminary
drafted master budget is done
to come up with the final draft
subject to the approval of the
top management.
6. Department heads or
supervisors approve the final
master budget.
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13. PRO-FORMA
STATEMENTS
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14. CONSTRUCTION
Operations Budget/Profit Plan
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1. Targeted Sales are
Estimated
2. & 3. Individual
Budgets/Plans

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Financial Resources Budget
4. Pro-Forma Income
Statement
6. Pro-Forma Statement
of Financial Position
(SFP)
5. Cash Budget Prior Period SFP
7. Capital Expenditures Budgets & other supportive

16. PROCEDURES
1. Establish or estimate sales
projection or targeted sales.
This will serve as a basis in
determining the targeted
number of units (volume) to be
sold. The sales budget is
considered as the cornerstone
of budgeting
2. Create the production budget
schedule, which includes the
raw materials costs, direct
labor costs, and overhead.
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3. Create the schedule for selling,
administrative, and other
expenses.
4. Compute for the net income by
preparing the pro-forma income
statement.
5. Create the pro-forma cash budget
schedule where the estimated cash
receipts and estimated cash
disbursements are presented.
6. From the pro-forma income
statement and cash budget
schedule, you can now create the
pro-forma statement of financial
position.

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“A budget is telling your
money where to go instead
of wondering where it
went.”
-Dave Ramsey
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18. THANK YOU
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