Sales and Purchases Budgets - Incorporating receivables and Payables Budgets

What are the Possible Budgets Which can be Prepared?

• Cash Budget (minimum essential budget for a business)

Other budgets that will feed into the Cash Budget:

• Sales Budget —> Purchases Budget ( Of finished Goods )

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(or if a manufacturing business)

• Production Budget

-Material Usage

-Employee Costs

-Overheads

-Material Purchases

• Administration expenses budget

• Selling and Distribution expenses budget

What is a Sales Budget Important for?

• A sales budget will be key for determining other budgets.

( It is important to lay out a sales budget in a recognised format, as it is with a cash budget)

What Are Key things to Look at for a Sales Budget?

Three Key things to look at are:

• What will be sold, in terms of number?

• What is the price?

And then:

• When will it be paid for? - taking into account credit terms if they are applicable.

What are Points to consider in preparation of budgets?

Points to consider in preparation of Sales Budgets (which are usually the key starting point in the budgeting process), are:

• Past sales patterns

• Pricing policies and discounts offered

• Economic environment

• Results of market research

• Competition

• Changing customer taste

• New legislation/ Environmental Factors

What is the Vertical relationship between a business’ sales budgets

Overall Sales Budget

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| Sales budget North Region. Sales Budget South Region. Sales Budget | East Region

Sales Budget West Region

What is a Purchases Budget? ( Retail Non-Manufacturing Business)

• For a non-manufacturing business, e.g. retail shop, which purchases a finished product and then re-sells it, the sales budget then will often determine the purchases budget.

• This is because a retail, non-manufacturing business will purchase what can be sold.

• In a manufacturing business, there will be purchases of the raw materials required to produce the product/s.

Example Layout of a purchases budget ( For jan, feb and march in terms of £)

Units purchased (in number)

Unit price (£)

Total Purchases (£)

• If all purchases are for cash, then expect these amounts to be paid for in month of purchase.

• If paid for ‘ on credit ’, then will be paid for in later months (usually 30 days)

Example layout purchases budget for finished product ( as per previous slide to feed into cash budget) - ( For months Jan, Feb, March in terms of £)

Units Purchases ( in number )

Unit Price (£)

Total Purchases (£ - in money terms)

Payables budget

Cash purchases (say 20%)

Credit purchases (say 80%)

Paid as follows: 70% after 1 month

10% after 2 months

Total Payment for Cash and Credit Purchases

Budgeted Income Statement and possibly Statement of Financial Position

All budgets will feed into:

• The cash Budget

• An overall Income Statement budget