Chapter 7 Blackboard

Chapter 7 Blackboard - CHAPTER 07 7-1 Chapter Overview...

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CHAPTER 07 7-1
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Chapter Overview Budget What? Why? Types? Master Budget Sales Budget Cash Receipts Schedule Inventory Purchases Budget Cash Payments for Inventory Schedule Selling and Administrative Budget Cash Payments for S&A Schedule Cash Budget Pro Forma Financial Statements Behavioral Issues
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Budget A detailed plan, expressed in quantitative terms, that specifies how resources will be acquired and used during a specified period of time.
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Advantages of Budgeting Budgeting Promotes Planning Promotes Coordination Enhances Performance Measurement Enhances Corrective Actions
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Types of Budgets Strategic Budget Master Budget Strategic planning involves making long- term decisions such as defining the scope of the business, determining which products to develop or discounting, and identifying the most profitable markets. Capital budgeting focuses on intermediate range planning and involves decisions as whether to buy or lease equipment, whether to stimulate sales, or whether to increase company assets. Master budget describes short-term objectives in specific sales targets, production goals, and financing plans. Capital Budget
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Master Budget summarizes the planned activities of all subunits of an organization . Sales Production Distribution Finance Rolling (Perpetual) Budget
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Cash payments Cash payments for inventory Inventory purchases budget Income Statement expense budget Balance Sheet Cash receipts Sales budget Cash budget Statement of Cash Flows Cash Receipts and Payments Schedules Operating Budgets Pro forma Financial Statements Start
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Sales Budget Detailed schedule prepared by the marketing department showing: 1. Expected sales for the coming periods (cash + credit) 2. Expected collections (only collected in cash during period) on those sales Sales Budget is critical to the success of the entire budgeting process.
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Example: Sales Budget Hampton Turkey (HT) is preparing a sales budget for the last quarter of the year. Turkey sales are expected to peak in the months of October, November, and December. The store sales for October are expected to total $160,000 ($40,000 in cash sales, and $120,000 in sales on account). Sales are expected to increase by 20% per month for November and December. Let’s prepare a sales budget.
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Sales Budget $48,000 120% = $57,600 $144,000 120% = $172,800 Sales revenue on the pro forma income statement will be the sum of the monthly sales ($582,400). $120,000 120% = $144,000 $40,000 120% = $48,000
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Schedule of Cash Receipts It is easier to prepare at the same time as the sales budget. Cash collections include the current month’s cash sales plus the previous month’s credit sales. Hampton Turkey (HT) will collect cash sales in the
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Chapter 7 Blackboard - CHAPTER 07 7-1 Chapter Overview...

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