Accounting 21th waren reeve fess chapter 21

Chapter 21 Budgeting Accounting, 21st Edition Warren Reeve Fess PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University © Copyright 2004 South-Western, a division of Thomson Learning All rights reserved Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc Some Some of of the the action action has has been been automated, automated, so so click click the the mouse mouse when when you you see see this this lightning lightningbolt bolt in in the the lower lower right-hand right-hand corner corner of of the the screen screen You You can can point point and and click click anywhere anywhere on on the the screen screen Objectives Objectives Describe budgeting, its objectives, and its impact on human behavior After After studying studying this this Describe the basic elements of the budget process, chapter, you should chapter, you should the two major types of budgeting, and the use of be be able able to: to: computers in budgeting Describe the master budget for a manufacturing business Prepare the basic income statement budgets for a manufacturing business Prepare balance sheet budgets for a manufacturing business Nature Nature and and Objectives Objectives of of Budgeting Budgeting Estimated portion of your total monthly income that should be budgeted Nature Nature and and Objectives Objectives of of Budgeting Budgeting Objectives of Budgeting • Establishing specific goals • Executing plans to achieve the goals • Periodically comparing actual results to the goals Feedback PLANNING DIRECTING CONTROLLING Nature Nature and and Objectives Objectives of of Budgeting Budgeting Human Behavior and Budgeting Setting budget goals too tightly Setting budget goals too loosely Setting conflicting budget goals Nature Nature and and Objectives Objectives of of Budgeting Budgeting Goal conflict occurs when individual selfinterest differs from business objectives A student’s question, “Will this be on the test?” is evidence of goal conflict Continuous Continuous Budgeting Budgeting One-Year Budget Feb 2006 Mar Apr 2006 2006 Delete on February 28 May 2006 June 2006 July 2998 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Jan 2007 Continuous Continuous Budgeting Budgeting One-Year Budget Mar Apr 2006 2006 May 2006 June 2006 July 2998 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Jan 2007 Feb 2007 Add February 2007 Static Static Budgets Budgets Description: A budget that does not reflect potential changes in volume or activity level Strength: It is simple—all expenses are budgeted as fixed costs Weakness: It does not reflect changes in revenues and expenses that occur as volumes change Typical usage: Service organizations or administrative departments of retailers and manufacturers Elite Accessories Inc Budgeted Income Statement For the Year Ending December 31, 2006 Revenue from sales (slide 23) Cost of goods sold (slide 40) Gross profit Selling & administrative expenses: Selling expenses (slide 41) $1,190,000 Administrative expenses (slide 41) 695,000 Total sell & Admin Expenses Income from operations Other income: Interest revenue $ 98,000 Other expense: Interest expense 90,000 Income before income tax Income tax Net income $13,336,000 9,047,780 $ 4,288,220 1,885,000 $ 2,403,220 8,000 $ 2,411,220 600,000 $ 1,811,220 The The cash cash budget budget isis one one of of the the most most important important elements elements of of the the budgeted budgeted balance balance sheet sheet We’ll We’ll begin begin with with aa schedule schedule of of collection collection from from sales sales Elite Accessories Inc Schedule of Collections from Sales For the Three Months Ending March 31, 2006 January February March Receipts from cash sales: Cash sales (10%)(see Note A)…………………… $108,000 $ 124,000 $ 97,000 Note NoteA: A: $108,000 $108,000==$1,080,000 $1,080,000xx10% 10% $124,000 $124,000==$1,240,000 $1,240,000xx10% 10% $$ 97,000 97,000==$$ 970,000 970,000xx10% 10% Elite Accessories Inc Schedule of Collections from Sales For the Three Months Ending March 31, 2006 January February March Receipts from cash sales: Cash sales (10%)(see Note A)…………………… $108,000 $ 124,000 $ 97,000 Receipts from sales on account: Collections from prior month’s sales (40%)(see Note B)…….$370,000$ 388,800 $446,400 Note NoteB: B: $370,000, $370,000,given givenas asJanuary January1, 1,2006 2006 Accounts Accounts Receivable Receivablebalance balance $388,800 $388,800==$1,080,000 $1,080,000xx90% 90%xx40% 40% $446,400 $446,400==$1,240,000 $1,240,000xx90% 90%xx40% 40% Elite Accessories Inc Schedule of Collections from Sales For the Three Months Ending March 31, 2006 January February March Receipts from cash sales: Cash sales (10%)(see Note A)…………………… $108,000 $ 124,000 $ 97,000 Receipts from sales on account: Collections from prior month’s sales (40%)(see Note B)…….$370,000$ 388,800 $446,400 Collections from current month’s sales (60%)(see Note C)…………………………… 583,200 669,600 523,800 Note NoteC: C: $583,200 $583,200==$1,080,000 $1,080,000xx90% 90%xx60% 60% $669,600 $669,600==$1,240,000 $1,240,000xx90% 90%xx60% 60% $523,800 $523,800==$$ 970,000 970,000xx90% 90%xx60% 60% Elite Accessories Inc Schedule of Collections from Sales For the Three Months Ending March 31, 2006 January February March Receipts from cash sales: Cash sales (10%)(see Note A)…………………… $108,000$ 124,000$ 97,000 Receipts from sales on account: Collections from prior month’s sales (40%)(see Note B)…… $370,000$ 388,800$446,400 Collections from current month’s sales (60%)(see Note C)…………………………… 583,200 669,600 523,800 Total receipts from sales on account…………………… $953,200 $1,058,400$970,200 Elite Accessories Inc Schedule of Payments for Manufacturing Costs For the Three Months Ending March 31, 2006 January February March Payment of prior month’s manufacturing costs (25%) (see Note A)………………… $190,000 $204,000 $189,000 Note NoteA: A: $190,000, $190,000,given givenas asJanuary January1,1,2006 2006Accounts Accounts Payable Payablebalance balance $204,000 $204,000==($840,000 ($840,000–$24,000) –$24,000)xx25% 25% $189,000 $189,000==($780,000 ($780,000––$24,000) $24,000)xx75% 75% Elite Accessories Inc Schedule of Payments for Manufacturing Costs For the Three Months Ending March 31, 2006 January Payment of prior month’s manufacturing costs (25%) (see Note A)………………… $190,000 Payment of current month’s manufacturing costs (75%) (see Note B)………………… 612,000 February March $204,000 $189,000 567,000 591,000 Note NoteB: B: $612,000 $612,000==($840,000 ($840,000––$24,000) $24,000)xx75% 75% $567,000 $567,000==($780,000 ($780,000––$24,000) $24,000)xx75% 75% $591,000 $591,000==($812,000 ($812,000––$24,000) $24,000)xx75% 75% Elite Accessories Inc Schedule of Payments for Manufacturing Costs For the Three Months Ending March 31, 2006 January Payment of prior month’s manufacturing costs (25%) (see Note A)………………… $190,000 Payment of current month’s manufacturing costs (75%) (see Note B)………………… 612,000 Total payments……………… $802,000 February March $204,000 $189,000 567,000 $771,000 591,000 $780,000 Elite Accessories Inc Cash Budget For the Three Months Ending March 31, 2006 January Estimated cash receipts: Cash sales (Slide 45)………… $ 108,000 Collections of accounts receivable (Slide 48)……… 953,200 Interest revenue……………… — Total cash receipts…………….$1,061,200 February March $ 124,000 $ 97,000 1,058,400 — $1,182,400 970,200 24,500 $1,091,700 Elite Accessories Inc Cash Budget For the Three Months Ending March 31, 2006 January Estimated cash receipts: Cash sales (Slide 45)………… $ 108,000 Collections of accounts receivable (Slide 48)……… 953,200 Interest revenue……………… — Total cash receipts…………….$1,061,200 February March $ 124,000 $ 97,000 1,058,400 — $1,182,400 970,200 24,500 $1,091,700 Estimated cash payments for: Manufacturing costs (Slide 51) $ 802,000$ 771,000$ 780,000 Selling and administrative expenses……………………… 160,000 165,000145,000 Capital additions 274,000 Interest expense 22,500 Income taxes 150,000 Elite Accessories Inc Cash Budget For the Three Months Ending March 31, 2006 January Estimated cash receipts: Cash sales (Slide 45)………… $ 108,000 Collections of accounts receivable (Slide 48)……… 953,200 Interest revenue……………… — Total cash receipts…………….$1,061,200 February March $ 124,000 $ 97,000 1,058,400 — $1,182,400 970,200 24,500 $1,091,700 Estimated cash payments for: Manufacturing costs (Slide 51) $ 802,000$ 771,000$ 780,000 Selling and administrative expenses……………………… 160,000 165,000145,000 Capital additions 274,000 Interest expense 22,500 Income taxes 150,000 Total cash payments………… $ 984,500$1,210,000$1,075,000 Elite Accessories Inc Cash Budget For the Three Months Ending March 31, 2006 Estimated cash receipts: Cash sales (Slide 45)………… $ Collections of accounts receivable (Slide 48)……… Capital additions Interest expense……………… Income taxes………………… Total cash payments………….$ January February 108,000 $ 124,000 953,200 1,058,400 274,000 March $ 97,000 970,200 22,500 984,500 Cash increase (decrease)………… $ 76,700 Cash balance at beginning of month 280,000 Cash balance at end of month…… $ 356,700 Minimum cash balance…………… 340,000 Excess (deficiency)……………… $ 16,700 $1,210,000 $ 150,000 $1,075,000 (27,600) $ 16,700 356,700 329,100 $ 329,100 $ 345,800 340,000 340,000 $ (10,900) $ 5,800 Chapter 21 The The End End ... After studying studying this this Describe the basic elements of the budget process, chapter, you should chapter, you should the two major types of budgeting, and the use of be be able able to:... inventory, Dec 31, 2006 Total……………………………… 156,000 365,000 20,000 541,000 52,000 146,000 12,000 210 ,000 Total Elite Accessories Inc Direct Materials Purchases Budget For the Year Ending December... square yards to be produced 156,000 365,000 20,000 541,000 18,000 523,000 52,000 146,000 12,000 210 ,000 15,000 195,000 Total Elite Accessories Inc Direct Materials Purchases Budget For the Year