accounting & financial analysis 11 lecture 5 b budgets
TRANSCRIPT
Accounting & Financial Analysis 11
Lecture 5 B
Budgets
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
1-2
The following textbook is the source of this lecture.
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
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Chapter 1 Budgeting fundamentals
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
1-4
Budgeting fundamentals
Budgeting is the process used to develop:
A formal written statement
Of managements plans for the future
Expressed in financial terms
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
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Types of plans
Long term: 5 to 10 years
Medium term: 1 to 5 years
Short term: up to 1 year
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
1-6
The planning cycle
Comparison of actual results to budget variance
Budgets Performance
Budgets are the mechanism by which management control of an organisation becomes possible.
Revise
Plan Action Results
Remedy
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
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Benefits of budgets
1. Forces managers to do planning.
2. Realistic performance targets.
3. Basis for controlling what happens within the organisation.
4. Helps coordinate the activities of the various centres that make up the business.
5. Communication – managers exchange information on ideas, etc.
6. Motivating tool – if the process involves
staff.
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
1-8
Limitations of budgets
Only estimates, not statements of facts. No substitute for sound management
practices. Need to be amended if circumstances
change. Preparation does not guarantee success. Aspects of people’s behaviour may
undermine the value of the process.
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
1-9
Budget classification
Static (fixed) budgets: prepared for one level of activity, usually around the forecasts made for sales.
Flexible budgets: a series of fixed budgets set to different levels of sales activity within which the organisation may operate.
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
1-10
Cost/volume relationships
Fixed costs: in total remain the same for a period of time and over a particular range of activity.
Variable costs: in total tend to change as the level of activity changes.
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
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Budget processes
Zero-based budgeting: sets the initial figures for each activity to zero.
Period budgets: developed for a specific period of time, e.g. a month.
Rolling (continuous) budgets: are continually updated by periodically adding a new incremental time period and dropping the period just completed.
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
1-12
Types of budgets
Revenue budgets: estimates of the income of an organisation from the sale of goods and/or provision of services for a specific period.
Operating budgets: estimate activities that will affect profit.
Budgeted financial statements: show the estimated results and projected financial position of a business. That is budgeted revenue, balance sheet and statement of cash flows.
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
1-13
Master budget
A combination of all the budgets of an organisation.
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
1-14
Master budget
Merchandising firm
Professional services
Manufacturing firm
Sales budget Fees or fees & sales budget
Sales budget
Purchases budget
Professional & support labour budget
Cost of production budget
Cost of goods sold budget
Cost of supplies used
Cost of goods sold budget
Other operating expense budgets
Other operating expense budgets
Other operating expense budgets
Copyright 2003 McGraw-Hill Australia Pty LtdPPTs t/a Budgeting, second edition, by Banks & Giliberti
Slides prepared by Mya Aronfeld
1-15
Master budget
Irrespective of the type of organisation, the following budgets will be part of the master budget: Statement of financial performance
[revenue budget] Statement of financial position [balance
sheet] Statement of cash flow