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Budget manuals

To facilitate budgeting procedures, a budget manual is usually prepared by

management. An average run of the mill budget manual may be composed of the
1. Objectives
2. Definition of authority
3. Responsibilities and duties of persons involved in the preparing the budget
4. Procedures of budgetary control
5. Time schedule for preparing the budget
6. Forms of schedules
7. Procedures in obtaining budget approval
8. Form and nature of performance report
9. Advantages of budgetary control
Budget- comes from a latin word bulga
- a plan for the coordination of resources and expenditures
Manuals- from a latin word manualis which means a worked or done by hand and
not by machine.

Components of the Master Budget

The different functional areas or sub-units of the firm have their own budgets,
these budgets are then fused to form one company-wide budget referred to as
master budget.
The master budget is the aggregation of all lower-level budgets produced by a
company's various functional areas, and also includes budgeted financial statements, a cash
forecast, and a financing plan.
1. Operational budget/ profit plan
- composed of detailed presentations of revenues, expenses and net profit
- an operating budget is a combination of known expenses, expected future costs, and
forecasted income over the course of a year.Operating budgets are completed in advance of
the accounting period, which is why they require estimated expenses and revenues.

2. Financial Resources Budget

Mainly made up of:
a. cash budget
b. pro-forma or budgeted of SFP
c. projected funds flow statement

3. Capital expenditures budget

- involves plans on material modification, acquisition and disposal of property plant
and equipment or material modification, acquisition or renewal of a firms
computerized information system.
Capital expenditures- capital expenditure, or CapEx, are funds used by a company to
acquire or upgrade physical assets such as property, industrial buildings or equipment. It is
often used to undertake new projects or investments by the firm.

4. Budgeted financial ratios

-ratios taken from the pro-forma or budgeted financial statements
- A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken
from an enterprise's financial statements. Often used in accounting, there are many standard ratios
used to try to evaluate the overall financial condition of a corporation or other organization

Pro-forma Statements of Financial Position (SFP)

-latin term meaning as a matter of form
-applied to the process of presenting financial projections for a specific time
period in a standardized format.
Uses of Pro-forma Statements in Business

Decision-making in planning and control

For external reporting to owners, investors and creditors
Basis of comparison
Analysis to provide management, investment analyst and credit officers for
businesss financial structure under various conditions

Pro-forma statements must be based upon objective and reliable information in

order to create an accurate projection of small businesss profits and financial
needs, for its first year and beyond.

Steps in creating the current pro-forms statements of financial position

Pro-forma statement
Pro-forma cash budget
Prior period pro-forma statement of financial position

Percentage of sales method

Financial forecasting approach which is based on the premise that most

balance sheet and income statement accounts vary with sales
Project the sales before all other forecasting is done
Less precise than pro-forma statement method
Details of month to monthvalues of cash flows are not provided