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.