BUDGETING

BUDGET
is an estimate of costs, revenues, and resources
over a specified period, reflecting a reading of
future financial conditions and goals

Sales budget, production

budget, operating budget and
cash budget are the budgets that
need to be prepared.
TYPE OF BUDGET
Sales Budget
Production Budget
Operating Budget
Cash Budget
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Sales
01 020304
It forecasting
provides
The finance manager
In the
the financial
statements, the most important
estimated
must consider the amount
statement account is sales because
of money
almost all of the based
accounts in onthe
INTERNAL and
financial statements are affected by
the volume
and gross profit of
EXTERNAL factors in
it. Cost of sales are
products
examples that
of accounts that area
preparing sales
affected by sales.
company proposes
Sales Revenue=Units to be
to sell
sold budget.
x Unitin thePrice
Selling future.
Sales
01 020304
The finance manager
In forecasting the financial
statements, the most important
mustaccount
statement consider
is sales the
because
almost all of the accounts in the
INTERNAL
financial statements areandaffected by
EXTERNAL factors in
it. Cost of sales and gross profit are
examples of accounts that are
preparing
affected by sales. sales
Sales Revenue=Units to be
sold x Unitbudget.
Selling Price
Sales
01 020304
The finance manager
must consider the
INTERNAL and
EXTERNAL factors in
preparing sales
budget.
01 02 0304
Production
It provides information with respect to
the number of units that should be produced
over a given accounting period based on
expected sales and targeted level of ending
inventories.

Required Production in Units =

Expected Sales + Target Ending
Inventories- Beginning Inventories
0102 03 04
Operating
It is made to estimate how much
their revenue and expenses would be
within a year. It is composed of the
variable and fixed costs needed to run
the operations of the business-like
wages and salaries of personnel, tax
payments, interest payments and rent
payments.
010203 04
Cash
It displays the expected cash
receipts and disbursements for an
accounting period. It is prepared on a
monthly or quarterly basis for a year

The cash budget is divided into

three parts: cash receipts, cash
disbursements, excess cash balance, or
required total financing.
PARTS OF
CASH BUDGET
 CASH RECEIPT
These compose of
collections from
receivables, proceeds from
loans, issuance of new
shares of stocks, and
advances from the
 stockholders.

CASH DISBURSEMENT
These include
payments to suppliers
and other service
providers, loans, and
cash dividends.
 Excess Cash Balance /
Required Total Financing
This part of the cash budget shows
possible funding requirements. If
the company has excess cash, it is
a good indicator that it can pay an
existing loan or put it in an
investment. If there is no excess
cash, the company must make a
 01
ute for4the cash
2
pts. Identify how
will be collected
om
thethe [Link]
projected
To compute for the
for the 3
CASH
r by the percentages
hles collection.
ments.
the projected sales
follow this steps:
2
BUDGET
er by the remaining
all
s ofthe
sales collection.
to be
quarter sales of last
e first quarter. Then
d1 add
to Quarter 3 sales
year 2020.
nses. 1
Quarter of Sale and
arter after Sale.
 01
4
2
Compute for the cash
receipts. Identify how
much will be collected
from
a. Multiply thethe [Link]
projected
for the 3 per quarter by the percentages
To compute for the

h of sales collection. CASH

follow this steps:
ments. b. Multiply the projected sales
BUDGET
all the 2 per quarter by the remaining
percentages of sales collection.
to be Use the last quarter sales of last
year for the first quarter. Then
d add use Quarter 1 to Quarter 3 sales
nses. for year 2020. 1
c. Add the Quarter of Sale and
the Quarter after Sale.
 01
4
02
Compute for the cash
receipts. Identify how
much will be collected
from
a. Multiply thethe [Link]
projected
3 Compute
per quarterfor the
by the percentages
To compute for the
of sales collection.
cash CASH
follow this steps:
disbursements.
b. Multiply the projected sales
BUDGET
per quarter by the remaining
Identify
percentagesallofthe
sales collection.
2
payments to
Use the last quarterbe sales of last
year for the first quarter. Then
made and1 to
use Quarter addQuarter 3 sales
for year 2020.
all expenses. 1
c. Add the Quarter of Sale and
the Quarter after Sale.
 01
4
02
Compute for the cash

03 receipts. Identify how

much will be collected
from
a. Multiply thethe [Link]
projected
Subtract the
Compute
per quarterfor the
by the 3
percentages
To compute for the

cash of sales collection.

cash CASH
follow this steps:
disbursement
disbursements.
b. Multiply the projected sales
BUDGET
from the per quarter by the remaining
cash allofthe
Identify
percentages sales collection.
2
receipts to the
payments
Use get to be
last quarter sales of last
year for the first quarter. Then
the netmade
cash and1 to
use Quarter addQuarter 3 sales
flow. all [Link] year 2020. 1
c. Add the Quarter of Sale and
the Quarter after Sale.
 01
04 02 Compute for 4the cash
03
Add the beginning much
receipts. Identify how
cash will be collected
from
a. Multiply thethe [Link]
projected
balance
Subtractand then
the
Compute
per quarterfor the
by the 3
percentages
To compute for the
subtract the minimum
cash
cash balance. If the
of sales collection.
cash CASH
follow this steps:
disbursement
minimum disbursements.
cash balance
b. Multiply the projected sales
BUDGET
is less thanthe
from the ending
per quarter by the remaining
cash allofthe
Identify
percentages
cash balance, the firm sales collection.
2
has receipts toIfthe
payments get to be
Use last quarter sales of last
excess cash. the
year for the first quarter. Then
the net
minimum cash cash
made
balance
use and1 to
Quarter add Quarter 3 sales
is flow.
greater than the for year 2020.
all expenses. 1
ending cash balance,
c. Add the Quarter of Sale and
the firm requiresthe Quarter after Sale.
financing.
 01
04 02 Compute for 4the cash
03
Add the beginning much
receipts. Identify how
cash will be collected
from
a. Multiply thethe [Link]
projected
balance
Subtractand then
the
Compute
per quarterfor the
by the 3
percentages
To compute for the
subtract the minimum
cash
cash balance. If the
of sales collection.
cash CASH
follow this steps:
disbursement
minimum disbursements.
cash balance
b. Multiply the projected sales
BUDGET
is less thanthe
from the ending
per quarter by the remaining
cash allofthe
Identify
percentages
cash balance, the firm sales collection.
2
has receipts toIfthe
payments get to be
Use last quarter sales of last
excess cash. the
year for the first quarter. Then
the net
minimum cash cash
made
balance
use and1 to
Quarter add Quarter 3 sales
is flow.
greater than the for year 2020.
all expenses. 1
ending cash balance,
c. Add the Quarter of Sale and
the firm requiresthe Quarter after Sale.
financing.
 PROJECTED FINANCIAL
STATEMENT
The projected financial statement is important in
planning to forecast the outcome of the organization in
future periods, assess the standing of the business,
and budget preparation. It will help in evaluating the
additional assets/funds needed in the business. It will
also serve as a basis for the business if it can pay its
 STEP 1
Forecast the Statement of Comprehensive Income

Forecast sales.
STEP 3
(Income Statement)
• ToThere
get the should be use
cost of sales,
theinformation
average cost of on
sales
Forecast cost of sales income
over taxesdata
the historical and
and operating expenses. how much financing
analyzed.
• cost a company
Find out will
which are variable
Forecast net income
have to and
expenses forecast
fixed net
and retained earnings. income.)
 STEP 1
Forecast the Statement of Comprehensive Income

Forecast sales.
STEP 3
(Income Statement)
• ToThere
get the should be use
cost of sales,
theinformation
average cost of on
sales
Forecast cost of sales income
over taxesdata
the historical and
and operating expenses. how much financing
analyzed.
• cost a company
Find out will
which are variable
Forecast net income
have to and
expenses forecast
fixed net
and retained earnings. income.)
 STEP 1
Forecast the Statement of Comprehensive Income

Forecast sales.
STEP 3
(Income Statement)
There should be
information on
Forecast cost of sales income taxes and
and operating expenses. how much financing
cost a company will
Forecast net income
have to forecast net
and retained earnings. income.)
 STEP 2
Forecast the Statement of Financial Position and
Statement of Cash Flows

Determine SFP accounts that Determine the external

will be affected or associated funds needed. The projected
with sales. (Cash, AR, statement of financial
inventories, AP, and accrued position has to be balanced
expenses payable) so EFN is computed.
 STEP 2
Forecast the Statement of Financial Position and
Statement of Cash Flows

Determine SFP accounts that Determine the external

will be affected or associated funds needed. The projected
with sales. (Cash, AR, statement of financial
inventories, AP, and accrued position has to be balanced
expenses payable) so EFN is computed.
 STEP 2
Forecast the Statement of Financial Position and
Statement of Cash Flows

Determine SFP accounts that Determine the external

+ EFN
will be affected or associated
- EFN
means that the company needs funds needed.
means that theThe projected
company has
more funds
with sales. (Cash, AR, excess funds
statement of financial
inventories, AP, and accrued position has to be balanced
EFN=Change in Total Assets-(Change in Total Liabilities
expenses payable)
+ Total Change in Stockholder’s
so EFN is Equity)
computed.
 Find out how to Finance EFN
After computing the EFN, the
management must determine how to
finance the company. They can raise
the funds through debt (borrowing from
the bank as notes payable) or equity
(through stocks and bonds) or it can be
the combination of the instruments.