MODULE 3: Cash Flow, Financial Planning, Budgets, & Control

• This provides information about the cash receipts and cash payments of an entity during the period.

  Statement of Cash Flows
• It is a formal statement that classifies cash receipts (inflows), and cash payments (outflows) into operating, investing, and financing activities.

  Statement of Cash Flows
• Cash Flow from Operating Activities involve in:

  • Revenue Accounts
  • Expense Accounts
  • Accounts Receivable or Accounts Payable Accounts
• Receipts from the sale of goods and performance of services.

  Cash Inflow from Operating Activities
• Receipts from royalties, fees, commissions and other revenues

  Cash Inflow from Operating Activities
• Payment to supplies of goods and services

  Cash Outflow from Operating Activities
• Payments to employees

  Cash Outflow from Operating Activities
• Payments to taxes

  Cash Outflow from Operating Activities
• Payments to interest expense

  Cash Outflow from Operating Activities
• Payments for other operating expenses

  Cash Outflow from Operating Activities
• Cash Flow from Investing Activitiesinvolve in:

  • Non-Current Assets
  • Notes Receivable Account
  • Debt Securities
• Receipts from the sale of property and equipment

  Cash Inflow from Investing Activities
• Receipts from sale of investments in debt and equity securities

  Cash Inflow from Investing Activities
• Receipts from collections on notes receivable.

  Cash Inflow from Investing Activities
• Payment to acquire property and equipment

  Cash Outflow from Investing Activities
• Payment to acquire debts or equity securities.

  Cash Outflow from Investing Activities
• Payments to make loans to others generally in the form of notes receivable.

  Cash Outflow from Investing Activities
• Cash Flow from Financing Activities involve in:

  • Owner's Equity
  • Withdrawals
  • Notes Payable Account
• Receipts from investments by owners.

  Cash Inflow from Financing Activities
• Receipts from issuance of notes payable.

  Cash Inflow from Financing Activities
• Withdrawals of the owners

  Cash Outflow from Financing Activities
• Payments to settle notes payable.

  Cash Outflow from Financing Activities
• The process of stating in quantitative terms their operations, usually in units and pesos, and planned their organizational activities for a given period.

  Budgeting
• OBJECTIVES OF BUDGETING

  1. Compels or forces managers to plan
  2. Provides information that can be used to improve it decision-making functions
  3. Helps to set a benchmark that can be used for performance evaluation
  4. Improves communication and coordination
• It is a network that is composed of operating budgets andfinancial budgets.

  Master Budget
• It is the detailed schedule for each item in the operation of the business (sales, production, purchases, and operating expenses).

  Operating Budget
• It is the starting point of all operating budgets. It is a detailed schedule showing the expected sales for the coming year. It shows both peso sales and units of products or levels of services.

  Sales Budget or Sales Forecast
• It applies to manufacturing firms only. After the sales target has been established, the production requirements will be prepared. It would show the sufficient goods to be produced for the period, and the required beginning and ending inventories of finished goods.

  Production Budget
• It is prepared for both manufacturing and merchandising firms. It will show the direct materials purchases for manufacturing and goods for sale for merchandising firms.

  Purchases Budget
• It shows the total number of units sold and its average unit prices.

  Cost of Goods Sold Budget
• It shows all the expenses for the period. This is prepared for each kind of expense. This includes direct labor and manufacturing overhead budgets for a manufacturing firm that is related to the production budget.

  Operating Expenses Budget
• It is prepared based on the detailed operating budgets and will show how profitable operations in the period. This will be used as the basis for evaluating the performance of the company by comparing the budget and the actual results at the end of each year.

  Budgeted Income Statement
• It is composed of the budgeted balance sheet, cash budget, and in some cases includes capital acquisition budget.

  Financial Budget
• It would show the Pro-forma presentation of the financial condition of the company. It is prepared beginning with the current balance sheet and adjusted by the amounts from the operating budgets.

  Budgeted Balance Sheet
• It show the cash balance at the end of the period. It will outline the beginning cash balance and adjusted by the total cash receipts and cash disbursements during the year whether from operating, investing, or financing activities of the firm. This will reflect also if the company will require some borrowings in a given period or can avail of any investment opportunities in case of excess cash.

  Cash Budget
• COMPONENTS OF A MASTER BUDGET

  • Operating Budget
  • Sales Budget or Sales Forecast
  • Production Budget
  • Purchases Budget
  • Cost of Goods Sold Budget
  • Operating Expenses Budget
  • Budgeted Income Statement
  • Financial Budget
  • Budgeted Balance Sheet
  • Cash Budget
• Benefits of Budgeting

  1. Planning
  2. Evaluating Performance
  3. Coordinating and Control
  4. Motivation and Positive Behavior
• It is responsible in making the budget program and in coordinating with the preparation of the budget itself.

  Budget Committee
• Contents of Budget Manual

  • Objectives and policies of the enterprise
  • Definition of line of authority and responsibility
  • Functions and responsibilities of the budget committee and the budget officer
  • Time schedules for budget preparation
  • Instructions and forms to be used
  • Program for preparation of budgets
  • Procedures for obtaining approval
  • Forms, nature and responsibility for the preparation of the budget.
  • Procedures for budgetary control and account codes in use.
• BASIC FACTORS to Consider in PREPARING THE BUDGET

  • Nature of demand for the product
  • Length of the trade cycle
  • Length of the production cycle
  • Functional area covered
  • Need for control of operations
  • Time Interval necessary for financing production well in advance of actual results
  • The accounting period