Business Plan – Q4: Financial and Management Accounting
Recap Q1:
1. Journal entries 2. T-account 3. Trial Balance
4. Profit & Loss account 5. Balance Sheet 6. Learning objectives
(financial statement)
1. Journal entries: Acquired rakes and other hand tools (equipment) with a list
price of $690 for $600, paid the hardware store $200 cash and signed a 3-
month note for the balance.
Equipment 600
Cash 200
Note payable 400
2. T-account:
WORK IN PROCESS MELTING
DEPT.
Beginning Transfer to
2,104,500 8,012,403
balance Skim/Alloy
June: costs 7,365,000
Total debits 9,469,500 8,012,403 Total credits
Ending balance 1,457,097
Ending balance value is stated in trial balance.
3. Trial balance:
Trial Balance 2014
Income Balance
Accounts: Trial Balance
Statement Sheet
Debit Credit Debit Credit Debit Credit
Insurance costs x x
Cost of sales x x
Depreciation x x
Energy costs x x
Marketing, sales and
x x
administrative costs
Rent x x
Sales x x
Inventory x x
Equipment x x
Accounts Receivable x x
Cash and equivalents x x
Accounts Payable x x
Long-term debt x x
Accumulated depreciation x x
Owner’s Equity x x
Retained Earnings x x
Private spending x x
Taxes Payable x x
Net income before taxes
Income taxes (?%)
Net income after taxes
Business Plan – Q4: Financial and Management Accounting
1
,4. Profit & Loss account (financial statement)
Income Statement 2014
Debit Credit
Insurance
x Sales x
costs
Cost of sales x Total income x
Depreciation x
Energy costs x
Marketing,
sales and
x
administrative
costs
Rent x
Total costs x
Net income x Net outcome
x
before taxes before taxes
Total Total
5. Balance Sheet
Balance Sheet 2014
Debit Credit
Cash and Accounts
x x
equivalents Payable
Accounts
x Taxes Payable x
Receivable
Total current
Inventory x x
liabilities
Total current
x
assets
Long-term
x
debt
Accumulated
Equipment x x
depreciation
Total non-
current x
liabilities
Total non-
current x Owner’s Equity
assets
Retained
x
Earnings
Total Owner’s
x
Equity
Total liabilities
x x
Total assets and Owner’s
Equity
Total Total
2 Business Plan – Q4: Financial and Management Accounting
,Week 1 – Training 1: Kick-off & Intro to Budgeting (Chapter 7:
Introduction to Budgets and Preparing the Master Budget)
Learning objectives:
1. Explain how budgets facilitate planning and coordination.
2. Anticipate possible human relations problems caused by budgets.
3. Explain potentially dysfunctional incentives in the budget process.
4. Explain the difficulties of sales forecasting.
5. Explain the major features and advantages of a master budget.
6. Follow the principal steps in preparing a master budget.
7. Prepare the operating budget and the supporting schedules.
8. Prepare the financial budget.
9. Use a spreadsheet to develop a budget.
Budgets > Goals and objectives
Budgets provide a comprehensive financial overview that helps coordinate
financial and operational activities.
Benefits of budgets:
1. Budgeting compels managers to think ahead by formalizing their
responsibilities for planning.
2. Budgeting provides an opportunity for managers to re-evaluate existing
activities and evaluate possible new activities.
3. Budgeting aids managers in communicating objectives and coordinating
actions across the organization.
4. Budgeting provides benchmarks to evaluate subsequent performance.
Three problems that can limit the advantages of budgeting:
1. Low levels of participation in the budget:
− Process and (due to that) lack of acceptance
− Responsibility for final budget
2. Incentives to lie and cheat in the budget process
3. Difficulties in obtaining accurate sales forecasts
The main factors affecting budget acceptance:
1. Perceived attitude of top management
2. Level of participation in the budget process
3. Degree of alignment between the budget and other performance goals
Potential problems in implementing budgets:
Budgets created with the active participation of all affected employees—called
participative budgeting—are generally more effective than budgets imposed on
subordinates. Misalignment between the performance goals stressed in budgets
versus the performance measures the company uses to reward employees and
managers can also limit the advantages of budgeting.
Message conveyed by the budget system may be misaligned with incentives
provided by the compensation system.
Business Plan – Q4: Financial and Management Accounting
3
, Dysfunctional incentives:
1. Dysfunctional incentives lead managers to make poor decisions
2. Lying can arise if the budget process creates incentives to bias the budget
information
3. Budgetary slack (budget padding) is the overstatement of budgeted costs (or
understatement of budgeted revenue) to create a goal that is easier to
achieve
Sales forecasting:
A sales forecast is a prediction of sales under a given set of conditions. Sales
forecasts are usually prepared under the direction of the top sales executive. The
sales budget is the specific sales forecast that is the result of decisions to create
the conditions that will generate a desired level of sales.
Factors to consider when forecasting sales:
1. Past patterns of sales: past experience combined with detailed past sales by
product line, geographic region, and type of customer can help predict future
sales
2. Estimates made by the sales force: company’s sales force is often best source
of information about desires and plans of customers
3. General economic conditions: financial press regularly publishes predictions
for many economic indicators, such as gross domestic product and industrial
production indexes (local and foreign); knowledge of how sales relate to these
indicators can aid sales forecasting
4. Competitors’ actions: sales depend on the strength and actions of
competitors. To forecast sales, company should consider likely strategies and
reactions of competitors, such as changes in their prices, product quality, or
services
5. Changes in the firm’s prices: company should consider the effects of planned
price changes on customer demand; normally, lower prices increase unit sales
while higher prices decrease unit sales
6. Changes in product mix: changing the mix of products often can affect not
only sales levels but also overall contribution margin; identifying most
profitable products and devising methods to increase their sales is key part of
successful management
7. Market research studies: some companies hire marketing experts to gather
information about market conditions and customer preferences. Such
information is useful to managers making sales forecasts and product-mix
decisions
8. Advertising and sales promotion plans: advertising and other promotional
costs affect sales levels; sales forecast should be based on anticipated effects
of promotional activities
It is easiest to prepare budgeted cash collections at the same time as the sales
budget. Cash collections include the current month’s cash sales plus the previous
month’s credit sales.
Week 1 – Training 2: Master Budget (Chapter 7: Introduction to Budgets
and Preparing the Master Budget)
Types of different budgets businesses use:
− Strategic plan (5-10 − Long-range planning − Master budget (1
year) year)
− Capital budget − Continuous budget (1 year; -1 month +1 month)
4 Business Plan – Q4: Financial and Management Accounting
Recap Q1:
1. Journal entries 2. T-account 3. Trial Balance
4. Profit & Loss account 5. Balance Sheet 6. Learning objectives
(financial statement)
1. Journal entries: Acquired rakes and other hand tools (equipment) with a list
price of $690 for $600, paid the hardware store $200 cash and signed a 3-
month note for the balance.
Equipment 600
Cash 200
Note payable 400
2. T-account:
WORK IN PROCESS MELTING
DEPT.
Beginning Transfer to
2,104,500 8,012,403
balance Skim/Alloy
June: costs 7,365,000
Total debits 9,469,500 8,012,403 Total credits
Ending balance 1,457,097
Ending balance value is stated in trial balance.
3. Trial balance:
Trial Balance 2014
Income Balance
Accounts: Trial Balance
Statement Sheet
Debit Credit Debit Credit Debit Credit
Insurance costs x x
Cost of sales x x
Depreciation x x
Energy costs x x
Marketing, sales and
x x
administrative costs
Rent x x
Sales x x
Inventory x x
Equipment x x
Accounts Receivable x x
Cash and equivalents x x
Accounts Payable x x
Long-term debt x x
Accumulated depreciation x x
Owner’s Equity x x
Retained Earnings x x
Private spending x x
Taxes Payable x x
Net income before taxes
Income taxes (?%)
Net income after taxes
Business Plan – Q4: Financial and Management Accounting
1
,4. Profit & Loss account (financial statement)
Income Statement 2014
Debit Credit
Insurance
x Sales x
costs
Cost of sales x Total income x
Depreciation x
Energy costs x
Marketing,
sales and
x
administrative
costs
Rent x
Total costs x
Net income x Net outcome
x
before taxes before taxes
Total Total
5. Balance Sheet
Balance Sheet 2014
Debit Credit
Cash and Accounts
x x
equivalents Payable
Accounts
x Taxes Payable x
Receivable
Total current
Inventory x x
liabilities
Total current
x
assets
Long-term
x
debt
Accumulated
Equipment x x
depreciation
Total non-
current x
liabilities
Total non-
current x Owner’s Equity
assets
Retained
x
Earnings
Total Owner’s
x
Equity
Total liabilities
x x
Total assets and Owner’s
Equity
Total Total
2 Business Plan – Q4: Financial and Management Accounting
,Week 1 – Training 1: Kick-off & Intro to Budgeting (Chapter 7:
Introduction to Budgets and Preparing the Master Budget)
Learning objectives:
1. Explain how budgets facilitate planning and coordination.
2. Anticipate possible human relations problems caused by budgets.
3. Explain potentially dysfunctional incentives in the budget process.
4. Explain the difficulties of sales forecasting.
5. Explain the major features and advantages of a master budget.
6. Follow the principal steps in preparing a master budget.
7. Prepare the operating budget and the supporting schedules.
8. Prepare the financial budget.
9. Use a spreadsheet to develop a budget.
Budgets > Goals and objectives
Budgets provide a comprehensive financial overview that helps coordinate
financial and operational activities.
Benefits of budgets:
1. Budgeting compels managers to think ahead by formalizing their
responsibilities for planning.
2. Budgeting provides an opportunity for managers to re-evaluate existing
activities and evaluate possible new activities.
3. Budgeting aids managers in communicating objectives and coordinating
actions across the organization.
4. Budgeting provides benchmarks to evaluate subsequent performance.
Three problems that can limit the advantages of budgeting:
1. Low levels of participation in the budget:
− Process and (due to that) lack of acceptance
− Responsibility for final budget
2. Incentives to lie and cheat in the budget process
3. Difficulties in obtaining accurate sales forecasts
The main factors affecting budget acceptance:
1. Perceived attitude of top management
2. Level of participation in the budget process
3. Degree of alignment between the budget and other performance goals
Potential problems in implementing budgets:
Budgets created with the active participation of all affected employees—called
participative budgeting—are generally more effective than budgets imposed on
subordinates. Misalignment between the performance goals stressed in budgets
versus the performance measures the company uses to reward employees and
managers can also limit the advantages of budgeting.
Message conveyed by the budget system may be misaligned with incentives
provided by the compensation system.
Business Plan – Q4: Financial and Management Accounting
3
, Dysfunctional incentives:
1. Dysfunctional incentives lead managers to make poor decisions
2. Lying can arise if the budget process creates incentives to bias the budget
information
3. Budgetary slack (budget padding) is the overstatement of budgeted costs (or
understatement of budgeted revenue) to create a goal that is easier to
achieve
Sales forecasting:
A sales forecast is a prediction of sales under a given set of conditions. Sales
forecasts are usually prepared under the direction of the top sales executive. The
sales budget is the specific sales forecast that is the result of decisions to create
the conditions that will generate a desired level of sales.
Factors to consider when forecasting sales:
1. Past patterns of sales: past experience combined with detailed past sales by
product line, geographic region, and type of customer can help predict future
sales
2. Estimates made by the sales force: company’s sales force is often best source
of information about desires and plans of customers
3. General economic conditions: financial press regularly publishes predictions
for many economic indicators, such as gross domestic product and industrial
production indexes (local and foreign); knowledge of how sales relate to these
indicators can aid sales forecasting
4. Competitors’ actions: sales depend on the strength and actions of
competitors. To forecast sales, company should consider likely strategies and
reactions of competitors, such as changes in their prices, product quality, or
services
5. Changes in the firm’s prices: company should consider the effects of planned
price changes on customer demand; normally, lower prices increase unit sales
while higher prices decrease unit sales
6. Changes in product mix: changing the mix of products often can affect not
only sales levels but also overall contribution margin; identifying most
profitable products and devising methods to increase their sales is key part of
successful management
7. Market research studies: some companies hire marketing experts to gather
information about market conditions and customer preferences. Such
information is useful to managers making sales forecasts and product-mix
decisions
8. Advertising and sales promotion plans: advertising and other promotional
costs affect sales levels; sales forecast should be based on anticipated effects
of promotional activities
It is easiest to prepare budgeted cash collections at the same time as the sales
budget. Cash collections include the current month’s cash sales plus the previous
month’s credit sales.
Week 1 – Training 2: Master Budget (Chapter 7: Introduction to Budgets
and Preparing the Master Budget)
Types of different budgets businesses use:
− Strategic plan (5-10 − Long-range planning − Master budget (1
year) year)
− Capital budget − Continuous budget (1 year; -1 month +1 month)
4 Business Plan – Q4: Financial and Management Accounting
