Expected Cash Receipts Classified by Source Expected Cash Disbursements
Expected Cash Receipts Classified by Source Expected Cash Disbursements
Expected Cash Receipts Classified by Source Expected Cash Disbursements
Budget – a financial plan of the resources needed to carry out tasks and meet financial
goals. It is also a quantitative expression of the goals the organization wishes
to achieve and the cost of attaining these goals.
Control – involves steps taken by management to ensure that the objectives set down at
the planning stage are attained and to ensure that all parts of the organization
function in a manner consistent with organizational policies.
Types of Budget
1. Operating Budget – the plans for the conduct of business for the planning period.
a. Budgeted Income Statement
1.1 Sales Budget
1.2 Production Budget
I. Inventory levels
II. Materials cost budget
III. Direct labor cost budget
IV. Factory overhead budget
2. Cost of sales budget
3. Selling and administrative budget
4. Financial expense budget
3. Capital Budget – a long term budget that shows planned acquisition and disposal of
capital assets, such as land, building and equipment.
Definition of terms
a. Budgeted Income Statement – projection of revenue, expenses, and results of
operations for a definite period of time.
b. Cash Budget – a period by statement of cash at the start of a budget period,
expected cash receipts classified by source; expected cash disbursements,
classified by function, responsibility, and form; and the resulting cash
balance at the end of the budget period.
c. Fixed Budget – projection of cost at a particular or one level of production
(usually at normal capacity) for a definite period of time.
d. Government Budget – not only financial plan and a basis for performance evaluation
but also an expression of public policy and a form of control having
the force of law.
e. Kaizen Budgeting – assumes continuous improvement of products and processes.
f. Life Cycle Budget – a products revenues and expenses are estimated over its entire
life cycle (from research and development to withdrawal of customers
support).
g. Participative Budget – budget prepared using employees of all levels in the
organization.
h. Physical Budget – budget that is expressed in units of materials, number of
employees, or number of man-hours of service units rather than in
pesos.
i. Planning Budget – another term for master budget.
j. Production Budget – production plan of resources needed to meet current sales demand
and ensure adequate inventory levels.
k. Program Budget – budget for the major programs or projects that the company plans to
undertake.
l. Responsibility budget – budget for a responsibility center.
m. Rolling (continuous, Progressive) Budget – budget which is prepared throughout the
year, that is, as one month elapses, a budget is
prepared for one more month in the future.
n. Sales Budget – budget that shows the quantity of each product expected to be sold.
o. Traditional Budgeting - a system of budgeting which concentrates on the incremental
change from the previous year assuming that the previous year’s
activities are essential and must be continued.
p. Zero – Based Budgeting – a system of establishing financial plans beginning with an
assumption of no activity and justifying each program or activity
level.
Budget Manual – a detailed set of information and guidelines about the budgetary
process.
Budget Committee – decides how budget shall be prepared and settles disputes in one
segment of the business and another when differences of opinion arise.
It usually headed by the controller.
Budget Director – the individual designated to be in charge of preparing an
organization’s budget.
Budget Period – the time period covered by the budget.
Master Budget – encompasses the organization’s operating and financial plans for a
certain future period of time. It is composed of the operating budget and
financial budget.
TRUE-FALSE STATEMENTS
1. The typical starting point of a master budget would be to prepare a budgeted balance
sheet.
2. A company that is profitable may not have sufficient cash on hand to meet their
immediate needs.
3. In a master budget the sales forecast would be dependent upon the budgeted
production figures.
4. A company's operating cycle is the time between purchases of direct materials and
conversion of these materials back into cash.
5. A master budget is a comprehensive financial plan setting forth the financial and
operational goals of a business.
6. A master budget actually includes a number of related budgets.
7. In preparing a master budget, budgeted levels for production, manufacturing costs,
and operating expenses normally are determined after preparing the sales forecast.
8. The preparation of a budgeted balance sheet requires consideration of the budgeted
capital expenditures and budgeted net income.
9. A debt service budget summarizes cash payments required for interest, and includes
those required to pay down principal.
10. If a budget is to provide a basis for evaluating departmental performance,
departmental managers should not know what their budget targets are until after the
budget period has ended.
1. A budget that adds a new month when the current month ends is called a:
4. Which of the following is not a benefit of a careful and thorough budgeting process?
9. The sales forecast directly affects many elements of the master budget. Which of
the following would be least affected by short-term fluctuations in the sales
forecasts?
A. The production schedule. C. The capital expenditures budget.
B. The budgeted income statement. D. The operating expense budget.
The following information is from the manufacturing budget and budgeted financial
statements of Taylor Corp.:
10. Refer to the information above. For the year, budgeted purchases of direct
materials amounted to:
A. P343,000 C. P358,000
B. P326,000 D. P368,000
11. Refer to the information above. For the year, budgeted cash payments to
suppliers amounted to:
A. P342,000 C. P332,000
B. P348,000 D. P352,000
12. Shoreline Corporation has budgeted a total of P361,800 in costs and expenses for
the upcoming quarter. Of this amount, P45,000 represents depreciation expense and
P7,300 represents the expiration of prepayments. Shoreline 's current payables
balance is P265,000 at the beginning of the quarter. Budgeted payments on current
payables for the quarter amount to P370,000. The company's estimated current
payables balance at the end of the quarter is:
A. P179,500 C. P203,500
B. P204,500 D. P310,000
On March 1, Grant Corporation plans to borrow P450,000 from the Ireland State Bank by
signing a 12%, 15-year note payable. The note calls for 180 monthly payments of
P5,000, which includes both interest and principal components.
13. Refer to the information above. Grant 's budgeted interest expense for March is:
A. P500 C. P4,000
B. P4,500 D. P5,000
14. Refer to the information above. Of Grant 's budgeted debt service cost of P5,000
in March, the amount applied to the principal of the note totals:
A. P500 C. P4,500
B. P4,000 D. P5,000
15. Refer to the information above. What are Morrow 's budgeted collections for
July?
A. P800,000 C. P1,083,000
B. P939,000 D. P915,000
16. Refer to the information above. What is the budgeted balance of Morrow 's
accounts receivable as of July 31?
A. P375,000 C. P415,000
B. P399,000 D. P396,000
17. Capricorn, Inc. uses a flexible budget. Capricorn produced 16,000 units in May
incurring direct materials cost of P20,480. Its master budget for the year
projected direct materials cost of P362,500, at a production volume of 290,000
units. A flexible budget for May should reflect direct materials cost of:
A. P20,480 C. P21,000
B. P20,000 D. P19,750
18. Tidwell Corporation sells a single product for P20 per unit. All sales are on
account, with 60% collected in the month of sale and 40% collected in the following
month. A schedule of cash collections for January through March of the coming years
reveals the following receipts for the period.
Cash receipts
January February March
December receivable P32,000
From January sales P54,000
From February sales P36,000 P44,000
From March sales P72,000
20. What is the ending balance of accounts receivable for September, assuming
uncollectible balance is written off after the second month?