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PRE Class 25 --Budgeting The Power of Simple Numerical Planning

PRE Class 25 --Budgeting The Power of Simple Numerical Planning

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Acc 200 Class 25 Budgeting: The Power of Simple Numerical Planning
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Today’s Agenda Budgeting: A Quadrant II Activity The Budget of the U.S. Government Pro-Forma Financial Statements Alma’s Advice about Financial Planning
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What SHOULD You Have Done Before the Start of Class Today? 1. Done the Packet reading. 2. Completed the pre-class Quiz (25a). 3. Found your assigned seat .
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Budgeting What is the purpose of a Day Planner? an iPhone, Blackberry, or other smart phone calendar? a desk calendar? an executive secretary? To make sure that you do First Things First . Without a benchmark or a plan, it is difficult to evaluate where you are.
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Benefits of Budgeting (from Software Lesson 14) Management communication Setting goals and objectives Problem resolution Coordination Authorization Performance evaluation Motivation
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Budgeting Derrald’s Cash Budget The data below are Derrald’s budgeted cash flows for the first 4 months of the year. January February March April Beginning cash balance Budgeted cash collections 100,000 80,000 75,000 146,000 Cash available Budgeted cash payments: Operating expenses 97,000 85,000 82,000 90,000 Dividends 0 17,000 0 0 Equipment purchase 0 25,000 0 0 Total budgeted cash payments 97,000 127,000 82,000 90,000 Preliminary budgeted cash balance Borrowing Loan repayment (ignore interest) Ending cash balance
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Budgeting Derrald’s Cash Budget Questions 1. Derrald’s actual cash balance on January 1 is $5,000. What is his budgeted cash balance at the end of January? 2. Derrald has a policy of maintaining a minimum cash balance of $5,000 at the end of each month. How much will Derrald have to borrow in February in order to maintain this minimum? 3. Assume that Derrald has an actual preliminary cash balance (before any borrowing) of negative $21,000 in February. Is this good news or bad news? Should Derrald plan to declare bankruptcy in February? Explain. 4. You are a banker. Derrald has come to you on January 1 to arrange short- term financing for the first 4 months of the year. Should you make the loan? Explain. [Hint: You should complete the cash budget for all 4 months.]
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Budgeting Derrald’s Cash Budget 1. Derrald’s actual cash balance on January 1 is $5,000. What is his budgeted cash balance at the end of January?
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Budgeting Derrald’s Cash Budget 2. Derrald has a policy of maintaining a minimum cash balance of $5,000 at the end of each month. How much will Derrald have to borrow in February in order to maintain this minimum?
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