ac102_ch7 - RevisedSummer2010 CHAPTER 7 PROFIT PLANNING Key...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Revised Summer 2010 Page 1 of 22 CHAPTER 7 PROFIT PLANNING Key Terms and Concepts to Know Profit Planning and Budgeting: Profit plan is the steps taken by the business to achieve their planned levels of profits. Budget is a quantitative plan for acquiring and using resources over a specific time period to achieve its goals and objectives. Budget is used for two distinct purposes: o Planning which is developing goals and preparing various budgets to achieve those goals o Control which involves steps taken by management to increase the likelihood that all parts of the organization are working together to achieve the goals set down at the planning stage Budgets help to: o Communicate management’s plans throughout the organizations o Force managers to think and plan for future o Allocate resources where they can be used most effectively o Uncover potential bottlenecks. o Coordinate the activities of the entire organization o Serve as benchmarks for evaluating subsequent performance. Operating budgets ordinarily cover a one-year period corresponding to the company’s fiscal year. Organization may also divide their budget year into quarters and the quarters into months with operating budgets for each period. Master Budget: Includes a number of separate but interdependent budgets that formally report the company’s sales, production, and financial goals. The starting point of the master budget is the sales budget. The ending point of the master budget is the budgeted financial statements. Since the budgeted financial statements include both an income statement and balance sheet, each step in the master budget has both an income statement and balance sheet component. Sometimes they are presented in the same budget and other times they are presented as separate budgets.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Revised Summer 2010 Page 2 of 22 Key Topics to Know Sales and Cash Collections Budget The foundation and starting point for the master budget. Determines the anticipated unit and dollar sales for the budgeted income statement. May also include a schedule of expected cash collections which determines the amount of expected cash collections from customers for each period based on an expected collections pattern. Example #1: Company A is expecting to sell 10,000 cases in July, 20,000 cases in August, and 30,000 in September of Year 2. Selling price per case is $30. All sales are on account. The sales are collected 70% in the month of sale and 30% in the month following sale. June sales totaled $200,000. Bad debts are negligible and can be ignored. Required: a) Prepare a sales budget. b) Prepare a schedule of expected cash collections from sales, by month and in total, for the third quarter. c) Assume that the company will prepare a budgeted balance sheet as of September 30. Determine the accounts receivable as of that date.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 22

ac102_ch7 - RevisedSummer2010 CHAPTER 7 PROFIT PLANNING Key...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online