Chapter 7 - CHAPTER 7 Notes Profit Planning Compiled by:...

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CHAPTER 7 Notes Profit Planning Compiled by: Lei Wang, CPA, CFE Certain materials used with permission of J. Fergusson or of McGraw-Hill Companies, Inc. Overview of Budgeting A budget is a detailed plan for acquiring and using financial and other resources over a specified period. Budgeting involves two stages: Planning: Developing objectives and preparing various detailed budgets to achieve those objectives. Control: The steps taken by management to attain the objectives set down at the planning stage. Purposes of Budgeting Budgets communicate management’s plans throughout the organization. Budgeting forces managers to give planning top priority. Budgets provide a means of allocating resources to their most effective uses. Budgeting uncovers potential bottlenecks. Budgeting coordinates the activities of the entire organization. Budgeting provides goals that serve as benchmarks for evaluating subsequent performance.
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ACCT 226 – Chapter 7 Page 2 of 7 The Master Budget Integrated group (set) of detailed budgets. As we can see from Exhibit 7-2, individual operating budgets are compiled in the preparation of the cash budget and forecasted (budgeted) financial statements. Sales Budget First budget prepared and probably the most critical operating budget because all the other budgets are developed from this budget. This budget deals with two important amounts: How much will we sell (volume) How much revenue will we earn (dollars) Sales Budget Formula: Sales Volume in Units * Unit Selling Price = Sales Revenue Schedule of Expected Cash Collections: Based on information from the Sales Budget
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This note was uploaded on 02/14/2011 for the course ACCT 226 taught by Professor Smith during the Spring '10 term at South Carolina.

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Chapter 7 - CHAPTER 7 Notes Profit Planning Compiled by:...

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