Week 5 –Chapter 7 FINANCIAL BUDGETS

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Week 5 – Chapter 7FINANCIAL BUDGETSFNSACC503AManage Budgets and Forecasts

By the end of this lesson,you will be able to Prepare a budgeted INCOME STATEMENT,BALANCE SHEET & CASH FLOW STATEMENTfor a merchandising firm.

Overview1. Types of budgeted financial statements.2. Budgeted income statement – FORMAT,PREPARATION, EXAMPLE3. Budgeted balance sheet – FORMAT,PREPARATION, EXAMPLE4. Budgeted cash flow statement –CLASSIFICATION OF CASH INFLOWS& OUTFLOWS, EXAMPLE

Budgeted Financial StatementsInclude;1. Income statement (statement of financialperformance) (like a video)2. Balance sheet (statement of financial position)(like a photo)3. Cash flow statementThese budgets summarise the forecasts made inall the other budgets which we have learnt howto prepare in this unit so far.

MASTER BUDGETS (chapter 1 : budgeting fundamentals)Budget income statementMERCHANDISINGSalesPurchases COGSMarketing expensesAdmin. expensesFinancial expensesPROFESSIONAL SERVICES*MANUFACTURINGBudget income statementFees incomeSalesProfessional and supportProduction Ending Inventorieslabour costse.g. dentist dental* direct materials (usage purchases)* direct labourassistant* factory overhead COGSMarketing expensesMarketing expensesAdmin. expensesAdmin. expensesFinancial expensesFinancial expensesCash budgetBudgeted balance sheet* sells expertise and knowledge Cash flow statementCapital expenditure budget

BUDGETED INCOMESTATEMENT

Budgeted income statement is a summaryof the following budgets Sales and/or Service fee incomePurchases COGSOperating expenses MarketingAdministrationFinancial (incl. discounts allowed or received bad debts)This budget is not affected byGST accounts.

FORMAT :budgeted income statement(merchandising organisation)SalesLess: COGSGross profitAdd: Interest incomeOperating incomeLess: Operating expenses Marketing Administration FinancialNet profit

PREPARATION :budgeted income statement(merchandising organisation)Step 1: Prepare the sales and/or service fee income budgetStep 2: Prepare the purchases budget followed by the COGS budgetNOTE:Information from the purchases budget will be used later on to work out cashpayments to Accounts Payable for credit purchasesStep 3: Prepare the operating expenses budgetsStep 4: Put all these budgets together to create a budgeted incomestatement

Budgeted income statementPlease refer to PART 1 of theWORKED EXAMPLE

BUDGETEDBALANCESHEET

Budgeted balance sheet This budget is prepared using the asset, liabilityand owner’s equity accounts. If GST payable (on GST collected) is GST inputtax credits (on GST paid), the net GST payable isshown as a current liability. If GST payable (on GST collected) is GST inputtax credits (on GST paid), the net GST input taxcredit is shown as a current asset. PLEASE REFER GST OVERVIEW ON NEXT SLIDE

GST Overview (from previous lesson)

FORMAT : budgeted balance sheetOwner’s funds:CapitalAdd: Net profit (from budgeted income statement)Less: Drawings Total owner’s fundsxxRepresented by:Current assets (incl. closing bank balance from cash budget)Less: Current liabilities Working capitalPlus: Non-current assetsLess: Non-current liabilities Net assetsxx

PREPARATION :budgeted balance sheetYou need to prepare the CASH BUDGET first in order to work out theclosing bank balance as at the end of the period (revision from lastweek)Step 1: Prepare the ‘collections from AR schedule’Step 2: Prepare the ‘payments to AP schedule’Step 3: Work out net GST payable/refundable (if required)Step 4: Prepare the cash budget**********Step 4: Calculate the closing balances for all other remaining asset andliability accounts e.g.:* Accounts Receivable* Accounts Payable* Accumulated DepreciationStep 5: Use all this information to prepare abudgeted balance sheet

Budgeted balance sheetPlease refer to PART 2 of theWORKED EXAMPLE

BUDGETEDCASH FLOWSTATEMENT

FORMAT : budgetedcash flow statement (AASB 107)Cash flows from operating activities:Net cash inflow/(outflow) from operating activitiesCash flows from investing activities:Net cash inflow/(outflow) from investing activitiesCash flows from financing activities:Net cash inflow/(outflow) from financing activitiesNet increase/(decrease) in cash heldAdd: Cash at beginning of period(opening bank balance from cash budget)Cash at end of period (closing bank balance from cash budget)xxxxxxxxxxxx

Budgeted cash flow statementDivided into 3 main categories 1.Operating activities2.Investing activities3.Financing activities

Classification of cash flowsOPERATING ACTIVITIES activities that relate to the provision of goods andservices.CASH IN FROMCASH OUT FROMSale of goods & servicesPayments to employeesInterest receivedPayments to suppliers of stockDividends receivedInterest paidPayments to Gov’t for taxesPayments for all other expenses

Classification of cash flowsINVESTING ACTIVITIES activities that relate to the acquisition and disposalof non-current assets.CASH IN FROMCASH OUT FROMCollection of loansGiving loansSale of non-current assetsPurchase of non-current assets

Classification of cash flowsFINANCING ACTIVITIES activities that relate to changes to the financialstructure of the businessCASH IN FROMCASH OUT FROMSale of sharesBuy back sharesBorrowingsPaying dividendsRepayment of debt

Budgeted cash flow statementPlease refer to PART 3 of theWORKED EXAMPLE

This week’s homework Read Chapter 7 – Financial Budgets Complete homework questions (chapter 7)(ref. STUDENT ONLINE STUDY GUIDE)

You are now ready to start thenext lesson on:Chapter 5Operating Budgets(manufacturing)

Budgeted balance sheet This budget is prepared using the asset, liability and owner’s equity accounts. If GST payable (on GST collected) is GST input tax credits (on GST paid), the net GST payable is shown as a current liability. If GST payable (on GST collected) is GST input tax credits (on GST paid), the net GST input tax

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