Accounting II Chapter 15 Budgetary Planning and Control
Terms:
Budgeting: Planning the financial operations of a business.
Budget: A written financial plan of a business for a specific period of time, expressed in dollars
Budget Period: The length of time covered by a budget.
Comparative Income Statement: An income statement containing sales, cost, and expense information for two or more years.
Performance Report: A report showing a comparison of projected and actual amounts for a specific period of time.
Budget are prepared to guide and direct a business in its operations. Budgets serve 3 functions 1. Planning, 2. Operational Control, and 3. Department Coordination.
The reason for planning should be self evident as most all organizations have a plan or they must plan to fail. Operational control is being able to compare actual information with budgeted information to distinguish if corrections need to be made and where. Department coordination allows managers from different departments to stay focused on the overall goals and objectives of the business as a whole.
Budget Design and Period depends on the business needs. The period may be any length of time. The usual time is a year. Budget information must be available well in advance. Gathering of information, analysis, making decisions, preparing the budget, and approving as well as communicating takes quite some time.
Types of Budgets:
Budgeted Income Statement: A projection of a business's sales, costs, expenses, and net income for a fiscal period. This may also be known as an operating budget.
Cash Budget: This budget projects cash receipts and cash payments for a fiscal period.
Information Sources for budgets:
Places to get information in preparing budgets are: Company records, economic information, company staff and managers, and finally good judgment and logic.
Preparations for Budgets: You will want to look at the previous years sales, costs, and expenses as well as looking perhaps prior to more than one year. Consider what is currently happening in the economy(interest rates, company profits, international situations). Finally goals need to be set for costs and expenses as a percent of sales.
Schedules: Schedules are utilized to put together pieces of information for budgets: Sales Budget Schedule, Purchases Budget Schedule, Selling Expenses Budget Schedule, Administrative Expenses Budget Schedule, Other Revenue and Expenses Budget Schedule are all created to compose the Budgeted Incomes Statement.
The Cash Receipts Budget Schedule and Cash Payments Budget Schedule are used to create the Cash Budget.
After preparing the schedules and then completing the budgets you will develop a performance report to compare budget to actual amounts. What you will be looking for is if there are any significant developments.
Assignments for this Chapter will include:
Joint Projects: Problem 15-1, 15-2, 15-3.
Individual Projects: Problems 15-M, 15-C. Questions for Individual Study.