CARPIO JAN CLEIFORD REPORT.ppt budgeting

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1. BUDGETING CHAPTER 11

2. CHAPTER OBJECTIVES Know the nature and characteristics of budgets. Understand the importance and functions of budgeting. Know the nature and composition of the master budget plan. Know the basic procedures used in preparing budgets. Understand how budgets are used for planning, control and performance evaluation.

3. BUDGET A budget is a plan, expressed in quantitative terms, on how to acquire and use the resources of an entity during a certain future period of time. An Instrument of management used as planning, programming, and business activity.

4. BUDGET DEFINED QUANTITATIVE AN ENTITY CERTAIN PERIOD OF TIME

5. A BUDGET IS A QUANTATIVE B udget is a plan, and a plan may either be in a descriptive quantitative form. For our purposes as accountants or MAS consultants, we shall consider the term budget as a plan initiative terms, In other words, we shall express all planned.

6. A budget refers to a certain entity or to a specific activity of an entity. AN ENTITY

7. A budget is for a specific future period of time. To be meaningful, a budget must be prepared for a specific period of time in the future, or a certain budget period ,budget period refers to any future period of time during which the budget is effective.

8. PROFIT PLANNING AND BUDGETING

9. The terms profit planning and budgeting are often used interchangeably because they are viewed as synonymous. Some practitioners, however, consider profit planning as a broader term than budgeting. Profit planning, in a broader perspective, is a well thought-out operational plan which involves setting of goals or objectives, as well as the methods or programs by which such goals are to be achieved. Specifically, profit planning encompasses the following: a. safes planning programs; b. programs for control of all manufacturing and nonmanufacturing costs; c. programs affecting working capital and plant investment; and d. a review of all factors affecting the return on investment.

10. LONG-TERM AND SHORT-RANGE PROFIT PLANNING Profit planning may be done on long-range and short-range bases .

11. LONG-RANGE PLANNING Long-range planning deals with specific areas of the company's plans, such as future sales, long-term capital expenditures, research and development activities, financial requirements and profit goals. In developing long-range plans, some factors are considered, among which are market trends, expected growth of population , and other economic indicators and indices that are expected affect the business. Based on these factors, projected annual income statements from a period of three to five years are prepared, together with projected balance sheets as of the end of each year of the planning period. For successful planning and control of operations, the company's long-range plan must be incorporated to a shorter-range plan.

12. SHORT-RANGE PLANNING Short-range plans are usually more detailed than long-range plans and cover a period of one year, though they may also be prepared for shorter time periods of six months, a quarter, a month, a week or even a day depending upon the nature of business and the company's budgeting requirements.

13. SETTING PROFIT OBJECTIVES Profit planning, as mentioned earlier, involves setting a profit goal. In so doing, three procedures are used in practice, to wit, the a priori, a posteriori and pragmatic methods. In the a priori method, management specifies a desired rate of return and then draws up plans to achieve such rate. Hence, the profit objective comes first before the entire planning process. In the a posteriori method, management draws up plans and then sets the profit rate resulting from the plans. In this case, the profit objective results from the entire, plan itself. In the pragmatic method, management uses an acceptable profit standard that is set based on the company's own business experience.