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 following: 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)
Pro-forma -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
"The Language of Business: How Accounting Tells Your Story" "A Comprehensive Guide to Understanding, Interpreting, and Leveraging Financial Statements for Personal and Professional Success"
All Germans Despise Judaism. Minor Premiss: All of The People Reading The Bible Are German. Conclusion: All of The People Reading The Bible Despise Judaism. Example 2: Major Premiss