The nature of business – the economic process \n businesses follow – is to:
(1) obtain capital \n (2) to make investments \n (3) to generate a positive future return
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Corporate finance
informs capital acquisition/maintenance
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Managerial accounting
Business Decisions
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Financial accounting
measures the returns
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Business budgets are formalized, _____________ \n plans
Quantitative
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A __________ plan defines a broad set of goals for the organization and selects the primary \n approaches that the organization will take to \n achieve its mission
Strategic
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Generally, they do not have specific ___________ targets
**financial**
\ What is the organization trying to achieve (i.e. its goals)? \n • Why does it want to achieve that goal? \n • How does it (broadly) intend to translate that goal into results?
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The long-range plan details the major activities in the next 3-5 years needed to _________________________
Accomplish the goal
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Annual budgets provide specific itemization of \n resources to be _____________________
**Generated and Sold**
\ Operating budget \n Cash budget
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Reasons for having a budget:
\ To take the strategic and long-range plans and fill in the _________________ for the coming year needed to stay on track to achieve their targets
specific
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Reasons for having a budget:
\ To force managers to _____________ (forward- \n looking)
Think Ahead
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Reasons for having a budget:
\ To allow for effective ___________ (backward-looking)
Evaluation
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Reasons for having a budget:
\ To be used as a tool of ________________ and \n coordination
Communication
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The operating budget provides all the information necessary to prepare a budgeted ______________ statement
Income
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Income Statement includes:
\ ____________ projections
**Revenue**
\n Selling expenses \n Administrative expenses
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Income Statement includes:
\ Cost-of-goods-sold projections, which include:
\n - The projected costs of materials, labor, and overhead for a manufacturing firm, or \n -The cost of ____________ for a merchandising firm
purchases
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Income statement includes:
\ _____________ expenses (interest cost)
financing
\ It includes more detail than an income statement
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The ___________________ budget consists of a \n compilation of the budgets for the various \n departments
organizational
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Each department must compile its budget based on its specific ___________ costs and revenues (if applicable) \n
Employee POV: you’re accountable to the budget!
projected
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Once specific items are identified, you evaluate:
\ Are the requests _____________? \n
Do the departments need all of the _________ they are requesting, or are they building “fat” into the budget? \n
If the budget is carried out as specified, will it result in a satisfactory outcome for the organization?
\n Will sales be high enough? \n
Will costs be low enough?
Reasonable;
\ Resources
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Workload refers to the ___________ of goods or \n services the organization will provide
volume
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There is inherent measurement ___________ in \n the world; flexible budgets provide a plan for \n varying workload levels that might happen
uncertainty
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As volume goes up or down, ________ costs \n remain unchanged, but ___________ costs change in proportion to the volume change
fixed; variable
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A flexible budget adjusts the operating budget for the changes in ____________
workload
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The cash budget is a plan for expected cash \n ________ (inflows) and ____________ (outflows)
receipts; payments
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It provides the information needed to know if there will be ________________ on hand at all times
adequate
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Cash flow forecasting is complicated by the fact \n that collections and payments are not __________ throughout the year
constant
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Monthly cash budgets assist in planning for short-term ______________ and ______ during the year
investments; loans
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The first step in budget preparation is the \n completion of an __________________ statement
Environmental
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What actions do we expect ___________ to take that might affect our sales or the price of our product?
\n Will _____________ be raising their prices? \n
Will new sources of raw materials become available? \n
Are there going to be significant shifts in consumer _____________? \n
Are new technologies available?
Competition;
\ Suppliers;
\ Demand
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The next step is for top management to develop a
set of general objectives and policies
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Before the actual budget can be developed, a set of ________________ must be adopted
__**Assumption**__
\ For example: \n
What will inflation be in the coming year? \n
How big a raise do we expect to give employees? \n
How much will we be raising our prices?
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Specific, ______________ goals should be \n established
**Measurable**
\ For example: \n
Sales will increase 5% \n
Profits will increase 6%
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\n A critical step in the budget process is the preparation of forecasts of what would happen under a variety of \n ___________.
alternatives
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For example: \n
What if we raise our ________? \n
What if we import partially ______________ parts? \n
What if we ___________? \n
In all of these cases, how much will we sell, at what price, and at what cost?
Prices;
\ Assembled;
\ Automate
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Forecasting is based on __________ patterns, but must be adjusted for any changes that may make the future __________ from the past, e.g. the future of the industry
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