Page 1 of 15
Financial &management accounting
Training 1
Learning objectives will be combined with the project (business plan)
Chapter 7!/ master budget
Exam: giving advice + underlining calculations. 50 % mc 50% open
questions. 13/20 mc questions -> 5.5!
Amortisation = depreciation intangible assets
EBIT = earning before interest and taxed
Chapter 7 introduction to budget and master budgets
a budget provides a
comprehensive
budget financial overiew of goals and objectives
plannend company
operations
Benefits of budgets
1. Provide an opportunity to re-evaluate existing activities and evaluate new
ones
2. Aid managers in communication objectives and coordinating actions
across the organization
3. Budgeting provides benchmarks to evaluate subsequent performance
Limiting advantages of budgeting
1. Low levels of participation in the budget and (due to that) a lack of
acceptance of responsibility for the final budget
2. Inceptives to lie and cheat in budget process
3. Difficulties in obtaining accurate sales of forecasts
Human relations problems
Budget acceptance and responsibility
- The main factors affecting budget acceptance are the:
i. Perceived attitude of top management
ii. The level of participation in the budget process
iii. Degree of alignment between the budget and other
performance goals
Management should seek to create an environment where there is a true two-
way flow of information.
Potential problems in implementing budgets participative budgets are
formulated with the active participation of all affected employees. Message
conveyed by the budget system may be misaligned with incentives provided by
the compensation system.
, Page 2 of 15
Dysfunctional Inceptives
Dysfunction incentives lead managers to make poor decisions. Lying can arise if
the budget process creates incentives to bias the budget information. Budget
slack (budget padding) is the overstatement of budgeted costs (or
understatement of budgeted revenue) to create a goal that is easier to
achieve.
Sales forecasting
A sales forecast is a prediction of sales under a given set of conditions. Sales
forecasts are usually prepared under the direction of top sales executive. The
sales budget is the result of decisions to create conditions that will generate a
desired level of sales.
Factors to consider when forecasting sales:
- Estimates made by sales force
- General economic conditions
- Competitors’ actions
- Changes in the firm’s prices
- Change in product mix
- Advertising and sales promotion plans
- Market research studies
- Past patterns of sales
Cash collections are easiest to prepare budgeted cash collections at the same
time as the sales budget. Cash collections include the current month’s cash sales
plus the previous month’s credit sales.
Sales budget = what they think will come in
Cash budget = what actually comes in
Training 2
Redo exercise 7-32
Strategic long-range master captial continuous
plan planning budget budget budget
Types of budgets:
1. Strategic plan
The most forward-looking budget is the strategic plan, which sets the
overall goals and objectives of the organization. The strategic plan lead to
long-range planning, which produces forecasted financial statements for
five- to ten-year periods.
2. Long-range planning
Long-range plans are coordinated with capital budgets which detail the
planned expenditures for facilities, equipment’s, new products or other
Financial &management accounting
Training 1
Learning objectives will be combined with the project (business plan)
Chapter 7!/ master budget
Exam: giving advice + underlining calculations. 50 % mc 50% open
questions. 13/20 mc questions -> 5.5!
Amortisation = depreciation intangible assets
EBIT = earning before interest and taxed
Chapter 7 introduction to budget and master budgets
a budget provides a
comprehensive
budget financial overiew of goals and objectives
plannend company
operations
Benefits of budgets
1. Provide an opportunity to re-evaluate existing activities and evaluate new
ones
2. Aid managers in communication objectives and coordinating actions
across the organization
3. Budgeting provides benchmarks to evaluate subsequent performance
Limiting advantages of budgeting
1. Low levels of participation in the budget and (due to that) a lack of
acceptance of responsibility for the final budget
2. Inceptives to lie and cheat in budget process
3. Difficulties in obtaining accurate sales of forecasts
Human relations problems
Budget acceptance and responsibility
- The main factors affecting budget acceptance are the:
i. Perceived attitude of top management
ii. The level of participation in the budget process
iii. Degree of alignment between the budget and other
performance goals
Management should seek to create an environment where there is a true two-
way flow of information.
Potential problems in implementing budgets participative budgets are
formulated with the active participation of all affected employees. Message
conveyed by the budget system may be misaligned with incentives provided by
the compensation system.
, Page 2 of 15
Dysfunctional Inceptives
Dysfunction incentives lead managers to make poor decisions. Lying can arise if
the budget process creates incentives to bias the budget information. Budget
slack (budget padding) is the overstatement of budgeted costs (or
understatement of budgeted revenue) to create a goal that is easier to
achieve.
Sales forecasting
A sales forecast is a prediction of sales under a given set of conditions. Sales
forecasts are usually prepared under the direction of top sales executive. The
sales budget is the result of decisions to create conditions that will generate a
desired level of sales.
Factors to consider when forecasting sales:
- Estimates made by sales force
- General economic conditions
- Competitors’ actions
- Changes in the firm’s prices
- Change in product mix
- Advertising and sales promotion plans
- Market research studies
- Past patterns of sales
Cash collections are easiest to prepare budgeted cash collections at the same
time as the sales budget. Cash collections include the current month’s cash sales
plus the previous month’s credit sales.
Sales budget = what they think will come in
Cash budget = what actually comes in
Training 2
Redo exercise 7-32
Strategic long-range master captial continuous
plan planning budget budget budget
Types of budgets:
1. Strategic plan
The most forward-looking budget is the strategic plan, which sets the
overall goals and objectives of the organization. The strategic plan lead to
long-range planning, which produces forecasted financial statements for
five- to ten-year periods.
2. Long-range planning
Long-range plans are coordinated with capital budgets which detail the
planned expenditures for facilities, equipment’s, new products or other
