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Chapter NineProfit Planning

COPYRIGHT 2012 Nelson Education Ltd.

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Learning Objectives

1. Define budgeting and discuss its role in planning, control,and decision making

2. Define and prepare the operating budget, identify its majorcomponents, and explain the interrelationships of its various

components3. Define and prepare the financial budget, identify its major

components, and explain the interrelationship of its variouscomponents

4. Describe the behavioural dimension of budgeting

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OBJECTIVE 1

Define budgeting anddiscuss its role inplanning, control, and

decision making

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Budgeting and Planning andControl

PlanningandControlaretiedtogether

Lookingaheadtoseewhat actionsshouldbetakento

realizeparticulargoalsPlanning

Lookingbackwarddeterminingwhatactuallyhappenedand comparingitwiththepreviously

plannedoutcomesControl

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Budgets

Key component of planning Financial plans for the future Identify objectives and actions

needed to achieve them

Before a budget is prepared, a strategicplan should be developed

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Strategic Plan

Identifiesstrategiesforfutureactivitiesandoperations

Long-andshort-termobjectives

Objectives form the basis ofthe budget

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Advantages of Budgeting

1.Forcesmanagerstoplan

2.Providesinformationthatcanbeusedtoimprovedecisionmaking

3.Providesastandardforperformanceevaluation

4.Improvescommunicationandcoordination

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Master Budget

Comprehensivefinancialplanfortheorganizationasawhole

Canbebrokendownintoquarterlyandmonthlybudgets

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Continuous Budget

Amoving12-monthbudget

January2011

February2011

December2011

January2012

.

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Budget Committee &Director Roles

Budget Committee: Reviews the budget Provides policy guidelines and budgetary goals

Resolves differences that arise as the budget is prepared Approves the final budget Monitors actual performance as the year unfolds

Budget Director:

Responsible for directing and coordinating overall budgetingprocess Usually the controller

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Major Components of theMaster Budget

Operational budgets

Describe the income-generatingactivities of a firm

Financial budgets Detain the inflows and outflows of cash

and the overall financial position

Master budget can be divided into

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OBJECTIVE2Define and prepare the

operating budget, identify itsmajor components, and

explain the interrelationships

of its various components

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Example: Cornerstone 9-1

Information:

Budgetedunitstobesoldforeachquarter:1,0001,2001,500and2,000

Sellingpriceis$10pert-shirt

Required:

Prepareasalesbudgetforeachquarterandfortheyear

How to Prepare a Sales Budget

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Sales Budget

Projection approved by budgetcommittee

describes expected sales in units and

dollars Basis for all other operating and most of

the financial budgets

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Sales Budget PreparationSteps

1. Develop a sales forecast- responsibility of marketing department- bottom-up approach

Salespeople submit sales projections2. Forecast is reviewed by budget

committee

3.

Budget committee recommendschanges prior to approval

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Moose Patties Inc.Sales Budget

For the Year Ending December 31, 2011

Unit sellingprice

1,000

Quarter

Units

1 Year

5,700

$10

Budgeted

sales

2 3 4

1,200 1,500 2,000

$10 $10 $10 $10

$10,000 $12,000 $15,000 $20,000 $57,000

Most sales happen in summer and fall

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Production Budget

Describeshowmanyunitsmustbeproducedinordertomeetsalesneedsand

satisfyendinginventoryrequirements

Formula:

Units to

beproduced

=

Expected

unitsales

Units in

endinginventory

+ -

Units in

beginninginventory

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Sales budget: 1st quarter = 1,000 units 2nd quarter = 1,200 units 3rd quarter = 1,500 units 4th quarter = 2,000 units

Beginning inventory is 180 t-shirts Ending inventory:

Desired quantity = 20% of the following quarters sales Sales for the first quarter of 2008 = 1,000 units

Information:

How to Prepare the Production Budget

Required:Prepareaproductionbudgetforeachquarterandfortheyear

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Moose Patties Inc.Production Budget


1,000

Quarter

Sales

1 Year

5,700

2 3 4

1,200 1,500 2,000

20% of secondquarters sales20% 1,200 units

Desired ending inv. 240 300 400 200 200

20% of thirdquarters sales

20% 1,500

units

20% of the nextyears first

quarter sales

20% 1,000units

From the salesbudget

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1,000

Quarter

Sales

1 Year

5,700

2 3 4

1,200 1,500 2,000

Beginning inventoryas of January, 1,

2011


Total needs 1,240 1,500 1,900 2,200 5,900

(240) (300)Less: Beg. inventory (180) (400) (180)

1st quarters ending inventoryis 2nd quarters beginning

inventory

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1,000

Quarter

Sales

1 Year

5,700

2 3 4

1,200 1,500 2,000

All four quartersproduction added together


Total needs 1,240 1,500 1,900 2,200 5,900

(240) (300)Less: Beg. inventory (180) (400) (180)

Units to be produced 1,060 1,260 1,600 1,800 5,720

1,240 needed, we alreadyhave 180, so we need to

produce 1,060 units219-21

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Direct Materials PurchasesBudget

Tellstheamountandcostofrawmaterialstobepurchasedineachtimeperiod

Formula:

Direct materials needed for production+ Desired direct materials in ending inventory

- Direct materials in beginning inventory

Direct materials to be purchased

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How to Prepare a Direct Materials Purchases Budget


Production budget Units to be produced:

1st quarter = 1,060 units 2nd quarter = 1,260 units 3rd quarter = 1,600 units 4th quarter = 1,800 units Total for the year = 5,720 units

Per-unit basis One plain t-shirt, $3 each 5 grams of ink, $0.20 per gram

Information:

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Example

Beginning inventory 58 plain t-shirts and 390 grams of ink

Ending inventory 10% of the following quarters production Desired ending inventory is 106 t-shirts and 530

grams of ink

Informationcontinued:

Required:

Prepareadirectmaterialspurchasesbudgetfor:

plaint-shirtsandink

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Moose Patties Inc.Direct Materials Purchases Budget


1,060

Quarter

Units to be produced

1 Year

5,720

2 3 4

1,260 1,600 1,800

10% of next quartersproduction needs

Direct materials per unit 1 1 1 1 1

Production needs 1,060 1,260 1,600 1,800 5,720

Desired ending inv. 126

Plain T-Shirts

259-25

From productionbudget

Each unit required1 plain t-shirt

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1,060

Quarter


1 Year

5,720

2 3 4

1,260 1,600 1,800

10% of the next years 1st quarterproduction needs



160 180Desired ending inv. 126 106 106

Plain T-Shirts

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1,060

Quarter


1 Year

5,720

2 3 4

1,260 1,600 1,800

1st quarters ending inventory is the 2ndquarters beginning inventory




Total needs 1,186 1,420 1,780 1,906 5,826

Plain T-Shirts

Less: Beg. inventory (58) (126)

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1,060

Quarter


1 Year

5,720

2 3 4

1,260 1,600 1,800

Beginning of the yearinventory




Total needs 1,186 1,420 1,780 1,906 5,826

Plain T-Shirts

Less: Beg. inventory (58) (126) (160) (180) (58)

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1,060

Quarter


1 Year

5,720

2 3 4

1,260 1,600 1,800

Turning # of t-shirts into $ amount




Total needs 1,186 1,420 1,780 1,906 5,826

Plain T-Shirts

Less: Beg. inventory (58) (126) (160) (180) (58)Qty to be purchased

Cost per t-shirt

1,128 1,294 1,620 1,726 5,768

$3

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1,060

Quarter


1 Year

5,720

2 3 4

1,260 1,600 1,800




Total needs 1,186 1,420 1,780 1,906 5,826

Plain T-Shirts


Cost per t-shirt

1,128 1,294 1,620 1,726 5,768

$3 $3 $3 $3 $3

Total cost $3,384 $3,882 $4,860 $5,178 $17,304

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1,060

Quarter


1 Year

5,720

2 3 4

1,260 1,600 1,800

Direct materials per unit 5

Ink

It takes 5 grams of ink for each t-shirt

We can do thesame thing for ink

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1,060

Quarter


1 Year

5,720

2 3 4

1,260 1,600 1,800




Total needs 5,930 7,100 8,900 9,530 29,130

Ink


Cost per t-shirt

5,540 6,470 8,100 8,630 28,740

$0.20 $0.20 $0.20 $0.20 $0.20

Total cost $1,108 $1,294 $1,620 $1,726 $5,748

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$3,384

Quarter

Total purchase cost of t-shirts

1 Year

$17,304

2 3 4

$3,882 $4,860 $5,178

Total purchase cost ofink 1,108 1,294 1,620 1,726 5,748

Total direct materials purchase

cost $4,492 $5,176 $6,480 $6,904 $23,052

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Direct Labour Budget

Showsthetotaldirectlabourhoursneededandtheassociatedcostforthenumberofunits

intheproductionbudget

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How to Prepare a Direct Labour Budget


Production budget Units to be produced:

1st quarter = 1,060 units

2nd quarter = 1,260 units 3rd quarter = 1,600 units 4th quarter = 1,800 units Total for the year 5,720 units

It takes 0.12 hour to produce one t-shirt Average wage cost per hour is $10

Information:

Required:

Prepareadirectlabourbudget

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Moose Patties Inc.Direct Labour Budget


1,060

Quarter


1 Year

5,720

2 3 4

1,260 1,600 1,800

Direct labour per unit 0.12 0.12 0.12 0.12 0.12

Total hours needed 127.2 151.2 192 216 686.4

$10 $10Avg. wage per hour $10 $10 $10

Total direct labour cost $1,272 $1,512 $1,920 $2,160 $6,864

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Overhead Budget

Shows the expected cost of allproduction costs other than direct

materials and direct labour

Overhead costs are separated intofixed and variable costs and a

variable rate is calculated

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Direct labour budget Budgeted direct labour hours:

1st quarter = 127.2 hours 2nd quarter = 151.2 hours 3rd quarter = 192 hours 4th quarter = 216 hours Total for the year = 686.4 hours

Variable overhead rate is $5 per direct labour hour Fixed overhead is budgeted at $1,645 per quarter

Information:

How to Prepare an Overhead Budget

Required:

Prepareanoverheadbudget

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Moose Patties Inc.Overhead Budget


127.2

Quarter

Budgeted direct labourhours

1 Year

686.4

2 3 4

151.2 192 216

Variable overhead rate x $5 x $5 x $5 x $5 x $5

Variable overhead $ 636 $ 756 $ 960 $1,080 $3,432

Budgeted fixed overhead

Add in the fixed overheadof $1,645 per quarter

Moose Patties bases

its variable overheadon direct labour hours

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Moose Patties Inc.Overhead Budget


127.2

Quarter

Budgeted direct labourhours

1 Year

686.4

2 3 4

151.2 192 216

Variable overhead rate x $5 x $5 x $5 x $5 x $5

Variable overhead $ 636 $ 756 $ 960 $1,080 $3,432

1,645 1,645

Budgeted fixed overhead

1,645 1,645 6,580

Total overhead $2,281 $2,401 $2,605 $2,725 $10,012

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Ending Finished GoodsInventory Budget

Supplies information needed for thebalance sheet

Important input for the preparation of the

cost of goods sold budget

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How to Prepare an Ending Finished Goods Inventory Budget


Each shirt requires one plain t-shirt and 5 grams of ink Each t-shirt costs $3.00 and ink costs $0.20 per gram

Takes 0.12 hours to produce one t-shirt Employees are paid an average of $10 per hour Variable overhead rate is $5 per direct labour hour Fixed overhead is budgeted at $1,645 per quarter

Information:

Required:Prepareanendingfinishedgoodsinventorybudget

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Direct labour

Direct materials $4.00

1.20

Unit cost computation:

0.12 hours of direct labour $10 per hour

Moose Patties Inc.Ending Finished Goods Inventory BudgetFor the Year Ending December 31, 2011

T-shirt + Ink =$3.00 + (5 grams @ $0.20) = $4.00

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Direct labour


0.60

Overhead:

Variable

1.20

1.15


Fixed

Budgeted fixed overhead of$6,580 / 686.4 budgeted direct labour

hours= $9.59 per hour

$9.59 0.12 hours

oose att es cEnding Finished Goods Inventory BudgetFor the Year Ending December 31, 2011

$5 per direct labour hour 0.12 hours

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Direct labour


0.60

Overhead:

Variable

Total unit cost $6.95

1.20

1.15


Fixed

200 shirts $6.95 = $1,390

Ending Finished Goods Inventory BudgetFor the Year Ending December 31, 2011

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Direct materials: T-shirts = $3 each 5,720 shirts produced

Ink = $0.20 per gram 5 grams per shirt 5,720 shirts produced Direct labour = $10 per hour x 0.12 hours per shirt 5,720

shirts produced Variable overhead = $5 per direct labour hour 0.12 hours

per shirt x 5,720 shirts Fixed overhead = $1,645 per quarter 4 quarters

Information:

HOW TO Prepare a Cost of Goods Sold Budget

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Direct labour used

$22,880

6,864

Direct materials used

Cost of Goods Sold BudgetFor the Year Ending December 31, 2011

5720 shirts 0.12 hours per shirt $10 per hour

(5720 $3 per t-shirt) +(5 grams ink $0.20 per gram 5720)

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Overhead

Direct labour used

$22,880

10,012

Budgeted manufacturing costs

Beginning finished goods

6,864

1,251



$39,756

180 units @ $6.95 per unit cost

Variable + Fixed

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Overhead

Direct labour used

$22,880

10,012

Budgeted manufacturing costs

Beginning finished goods

Less: Ending finished goods (1,390)

6,864

1,251


Goods available for sale


$39,756

$41,007

Budgeted cost of goods sold $39,617

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Selling and Administrative

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Selling and AdministrativeExpenses Budget

Outlines planned expenditures fornonmanufacturing activities

Selling and administrative expensescan be broken down into fixed and

variable components

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How to Prepare a Selling and Administrative Expenses Budget


Sales budget 1,000; 1,200; 1,500; and 2,000 units sold inquarters 1 through 4, respectively

Variable expenses = 0.10 per unit sold Fixed expenses:

Salaries average $1,420 per quarter Utilities = $50 per quarter Depreciation = $150 per quarter

Advertising = $100; $200; $300 and $500 for quarters 1 through 4 Insurance is $500 and is paid in the third quarter

Information:

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Selling and Administrative Expense BudgetFor the Year Ending December 31, 2011

1,000

Quarter

Planned sales in units

1 Year

5,700

2 3 4

1,200 1,500 2,000

Variable expenses* $0.10 $0.10

Total Variable exp. $ 100 $ 120 $ 150 $ 200 $ 570

Fixed expenses:

Salaries $1,420 $1,420 $1,420 $5,680

Utilities 50 50 50 50 200

Advertising

Depreciation

100 200 300 500 1,100

150 150 150 150 600

Total Selling & Admin $1,820 $1,940 $2,570 $2,320 $8,650

$0.10 $0.10 $0.10

$1,420

Insurance ----- 500----- ----- 500

Total fixed exp. $1,720 $1,820 $2,420 $2,120 $8,080

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Sales budget, $57,000 Cost of goods sold, $39,617

Selling and administrative expenses, $8,650 (600 isdepreciation) Income tax rate, 40% Interest expense, $60

Information:

How to Prepare a Budgeted Income Statement

Required:

Prepareabudgetedincomestatement

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Less: Cost of goods soldSales $57,000

(60)

Gross margin

Less: Selling and admin. exp.

Net income(3,469)

(39,617)

$8,673

Operating income

$17,383

(8,650)

Income before taxes

Less: Income taxes$5,204

$8,733Less: Interest expense

Budgeted Income StatementFor the Year Ending December 31, 2011

Income before taxes of $8,673 40% tax rate

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OBJECTIVE3Define and prepare the

financial budget, identify itsmajor components, and

explain the interrelationships

of its various components

Preparing the Financial

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Preparing the FinancialBudget

Cash budget

Budgeted balance sheet Budget for capital expenditures

Theusualfinancialbudgetspreparedare:

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25% of total sales are cash 75% of total are on credit

90% paid during the quarter of sale, 10% paid the following quarter 2011 Sales:

(Q1 $10,000; Q2 $12,000; Q3 $15,000; Q4 $20,000) Balance in Accounts Receivable at end of 2010: $1,350

Collected in cash during first quarter of 2011

Information:

How to Prepare an Accounts Receivable Aging Schedule

Required: Calculate cash sales expected in each quarter of 2011 Prepare a schedule showing cash receipts from sales expected in each quarter

of 2011

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Cash Receipts from Credit SalesFor the Year Ending December 31, 2011

$2,500

Quarter

Cash sales

1 2 3 4

Received on account from:

Quarter 4, 2010 1,350

10% of 4th quarter 2010s credit sales will be

collected in the 1st quarter of 2011

1st quarter sales 25%$10,000 25%

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$2,500

Quarter

Cash sales

1 2 3 4


Quarter 4, 2010 1,350

Quarter 1, 2011 6,750

90% of this quarters credit sales

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$2,500

Quarter

Cash sales

1 2 3 4

$3,000


Quarter 4, 2010 1,350

750

8,100

Quarter 1, 2011 6,750

Total cash receipts $10,600

Quarter 2, 2011

Quarter 3, 2011Quarter 4, 2011

Remainder of 1stquarters credit

sales arecollected alongwith 90% of 2ndquarters sales

25% of 2ndquarters sales

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$2,500

Quarter

Cash sales

1 2 3 4

$3,000 $3,750 $5,000


Quarter 4, 2010 1,350

750

900

1,125

8,100

10,125

Quarter 1, 2011 6,750

13,500

Total cash receipts $10,600 $11,850 $14,775 $19,625

Quarter 2, 2011

Quarter 3, 2011Quarter 4, 2011

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How to Determine Cash Payments on Accounts Payable


All raw materials purchases on account 80% paid for in quarter of purchase 20% paid for in the quarter of purchase

4th quarter 2010 purchases; $5,000 Expected purchases for 2011:

Quarter 1; $4,492 Quarter 2; $5,176 Quarter 3; $6,480

Quarter 4; $6,904

Information:

Required:

Prepare a schedule showing anticipated payments for accountspayable for materials

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Cash Payments on Accounts PayableFor the Year Ending December 31, 2011

QuarterSource 1 2 3 4

Quarter 4, 2010 1,000

Quarter 1, 2011 3,594

80% $4,492

20% $5,000

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Cash Payments on Accounts PayableFor the Year Ending December 31, 2011

QuarterSource 1 2 3 4

Quarter 4, 2010 1,000

898

1,035

1,296

4,141

5,184

Quarter 1, 2011 3,594

5,523

Total cash payments $4,594 $5,039 $6,219 $6,819

Quarter 2, 2011

Quarter 3, 2011

Quarter 4, 2011

649-64

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Information:All previous budgets and the following specific details:

1. $1,000 minimum cash balance is required for end of each quarter. Moneycan be borrowed and repaid in multiples of $1,000. Interest is 12% per year.

Interest payments are made only for amount of principal being repaid. Allborrowing takes place at beginning of a quarter, and repayment takes placeat quarter end

2. Budgeted per quarter depreciation is $540 for overhead and $150 for sellingand administrative expenses (Cornerstones 9-5 and 9-8)

How to Prepare a Cash Budget

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Example

Information continued:

3. Capital budget for 2011 revealed plans to purchase additional screen printingequipment. Cash outlay for equipment, $6,500, will take place in Q1. Acquisitionof equipment is to be financed with operating cash, supplementing it with short-term loans as necessary

4. Corporate income taxes are $3,469 and will be paid at end of fourth quarter(Cornerstone 9-9)

5. Beginning cash balance equals $5,200

6. All amounts in budget are rounded to the nearest dollar

Required:

Prepare a cash budget for Moose Patties

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Cash sales and collections onaccount:

$ 5,200

Quarter

Beginning cash bal.

1 2 3

10,600

4 Year

$15,800

Cash BudgetFor the Year Ending December 31, 2011

Total cash available

Less disbursements:

Payments for:

Raw materials $ (4,594)

Calculated in Cornerstone 9-11

Calculated in Cornerstone 9-

10

Calculated in Cornerstone

9-4

Direct labour (1,272)

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$ 5,200

Quarter

Beginning cash bal.

1 2 3

10,600

4 Year

$15,800



Less disbursements:

Payments for:

Raw materials $ (4,594)Direct labour (1,272)

Overhead (1,741)Budgeted selling and

administrative expenses(Cornerstone 9-8) minus $150

depreciation per quarterSelling andadministrative

(1,670)

Budgeted overhead(Cornerstone 9-5) minus $540

depreciation per quarterDepreciation is removed

because it does not involve acash disbursement

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Cash Budget continued

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----

Quarter

Selling and administrative

1 2 3 4 Year

Income taxes

(1,670)

Equipment (6,500)Total disbursements $(15,777)

Excess of cash availableover needs

$ 23Financing:

Borrowings 1,000Repayments ----

Moose Patties Inc. mustborrow $1,000 to meet their

minimum ending cashbalance

709-70

Cash Budget concluded

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Quarter

1 2 3

Borrowings 1,000

4 Year

Repayments

Interest ----Total financing $1,000Ending cash balance

$1,023

Financing:

----

719-71

Moose Patties Inc.Cash Budget

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$ 5,200

Quarter

Beginning cash bal.

1 2 3

10,600

4 Year

$15,800



Less disbursements:

Payments for:

Raw materials $ (4,594)Direct labour (1,272)

Overhead (1,741)Selling andadministrative

(1,670)

$ 1,023

1st quarters ending cash balanceis the 2nd quarters beginning

balance

729-72


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$ 5,200

Quarter

Beginning cash bal.

1 2 3

10,600

4 Year

$15,800



Less disbursements:

Payments for:

Raw materials $ (4,594)Direct labour (1,272)Overhead (1,741)Selling andadministrative

(1,670)

$ 1,023

11,850

$12,873

$ (5,039)

(1,512)

(1,861)

(1,790)739-73

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74/90


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75/90



Quarter

1 2 3

Borrowings 1,000

4 Year

Repayments


$1,023

Financing:

----

----

(1,000)

(60)(1,060)

$1,611

759-75


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76/90



$ 5,200

Quarter

Beginning cash bal.

1 2 3

10,600

4 Year

$15,800



Less disbursements:

Payments for:


(1,670)

$ 1,023

11,850

$12,873

$ (5,039)

(1,512)

(1,861)

(1,790)

$ 1,611

14,775

$16,386

$(6,219)

(1,920)

(2,065)

(2,420)769-76

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77/90


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Quarter

1 2 3

Borrowings 1,000

4 Year

Repayments


$1,023

Financing:

----

----

(1,000)

(60)(1,060)

$1,611

----

----

--------

$3,762

789-78


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$ 5,200

Quarter

Beginning cash bal.

1 2 3

10,600

4 Year

$15,800



Less disbursements:

Payments for:


(1,670)

$ 1,023

11,850

$12,873

$ (5,039)

(1,512)

(1,861)

(1,790)

$ 1,611

14,775

$16,386

$(6,219)

(1,920)

(2,065)

(2,420)

$ 3,762

19,625

$23,387

$(6,819)

(2,160)

(2,185)

(2,170)799-79


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----

Quarter


1 2 3 4 Year

Income taxes

(1,670)

Equipment (6,500)Total disbursements $(15,777)


$ 23

Financing:


(1,790)

----

----

$(10,202)

$ 2,671

----

(1,000)

(2,420)

----

----

$(12,624)

$ 3,762

----

----

(2,170)

(3,469)

----

$(16,803)

$ 6,584

----

----

809-80


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Quarter

1 2 3

Borrowings 1,000

4 Year

Repayments

Interest

----

Total financing $1,000Ending cash balance

$1,023

Financing:

----

----

(1,000)

(60)(1,060)

$1,611

----

----

--------

$3,762

----

----

--------

$6,584

819-81


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$ 5,200

Quarter

Beginning cash bal.

1 2 3

10,600

4 Year

$15,800



Less disbursements:

Payments for:


(1,670)

$ 1,023

11,850

$12,873

$ (5,039)

(1,512)

(1,861)

(1,790)

$ 1,611

14,775

$16,386

$(6,219)

(1,920)

(2,065)

(2,420)

$ 3,762

19,625

$23,387

$(6,819)

(2,160)

(2,185)

(2,170)

$ 5,200

The

yearbeganwith

$5,200in cash

829-82


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$ 5,200

Quarter

Beginning cash bal.

1 2 3

10,600

4 Year

$15,800



Less disbursements:

Payments for:


(1,670)

$ 1,023

11,850

$12,873

$ (5,039)

(1,512)

(1,861)

(1,790)

$ 1,611

14,775

$16,386

$(6,219)

(1,920)

(2,065)

(2,420)

$ 3,762

19,625

$23,387

$(6,819)

(2,160)

(2,185)

(2,170)

$ 5,200

56,850

$62,050

$(22,671)

(6,864)

(7,852)

(8,050)839-83


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----

Quarter


1 2 3 4 Year

Income taxes

(1,670)

Equipment (6,500)Total disbursements (15,777)


$ 23

Financing:


(1,790)

----

----

(10,202)

$ 2,671

----

(1,000)

(2,420)

----

----

(12,624)

$ 3,762

----

----

(2,170)

(3,469)

----

(16,803)

$ 6,584

----

----

(8,050)

(3,469)

(6,500)

(55,406)

$ 6,644

1,000(1,000)

During the year $1,000 is borrowed and

repaid


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Quarter

1 2 3

Borrowings 1,000

4 Year

Repayments


$1,023

Financing:

----

----

(1,000)

(60)(1,060)

$1,611

----

----

--------

$3,762

----

----

--------

$6,584

1,000(1,000)

(60)(60)

$6,584

859-85

Budgeted Balance Sheet

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Budgeted Balance Sheet

Information: Last years balance sheet:

Balance Sheet

Moose Patties Inc.

December 31, 2010

AssetsCurrent assets:

$ 5,200Accounts receivable 1,350

Raw materials inventory 252Finished goods inventory 1,251

Total current assets $ 8,053

Cash

869-86

Example

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Example

Property, plant and equipment (PP&E):

Building and equipment

Land $ 1,100

Total PP&E

$1,000

Liabilities and Owners Equity:

33,153

Total owners equity 33,153

Total liabilities and owners equity $34,153

30,000

Accumulated depreciation (5,000)

26,100

Total assets $34,153

Current liabilities:

Accounts payable

Owners equity:

Retained earnings

Using this balance sheetand the budgets, we canprepare the December31, 2011 balance sheet

879-87

Moose Patties Inc.Balance Sheet

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Cash $ 6,584

Current assets:

Balance SheetDecember 31, 2011

Assets

Accounts receivable 1,500

Raw materials inventory 424

Finished goods inventory 1,390

Total current assets $ 9,898

Property, plant and equipment (PP&E):

Land $ 1,100

Building and equipment 36,500

Accumulated depreciation (7,760)

Total PP&E 29,840

2010 balance

$5,000 + $2,7602011 depreciation

Ending cashbalance fromcash budget

889-88

Balance Sheet continued

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Total PP&E


29,840Total assets $39,738


Accounts payable $1,381

38,357

Owners equity:

Retained earnings

2010 balance $33,153 + $5,204 2011sprojected net income

899-89


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Total PP&E


29,840Total assets $39,738


Accounts payable $1,381

38,557

Owners equity:

Retained earnings

Total liabilities and owners equity $39,738

0176503617_313738

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