BF 4

• The left side of the account is debit
• The temporary accounts are the nominal account
• The right side of the account is credit
• The elements of the statement of financial position are assets, liabilities and equity.

  
• Current assets are easily convertible into cash within the normal operating cycle of the business
• Kinds of assets


  • Current assets
  • Non-current assets
• Kinds of liabilities


  • Current liabilities
  • Non-current liabilities
• Under owner's equity account

  • Capital
  • Owner's withdrawal
  • Revenue
  • Expenses
• Strategic Plan


  The grand plan of any organization wherein the overall objectives are set and specific programs are created in support of the objectives
• Vision Statement


  Explains what the organization aspires to be in the long-term
• Mission Statement


  Explains the organization's core purpose which provide direction to the whole firm
• Corporate Strategies


  The concrete programs for specific business units, departments and cross-functional areas that must all be aimed at achieving the corporate objectives
• Department Plans and Programs


  Specific in terms of activities, the people responsible in carrying out, timelines and targets and the budget per activity
• Financial Forecasts and Budgets


  Tie everything together since plans and programs, specific targets, budgets and forecasts are made based on corporate objectives
• SWOT Analysis


  Refers to the internal strengths and weaknesses of a firm and the environmental opportunities and threats it faces through which managers can quickly assess the situation of the company and make the necessary plan of action
• Strengths


  Factors that are within the control of the firm and there are factors that the firm can capitalize on
• Weaknesses


  Factors that are causing negative impacts on company's performance since within the control of the firm but have not been addressed and should strive to eliminate
• Opportunities


  Positive external forces that impact the firm's industry hence, outside the control of the firm and requires to look beyond a company's operation
• Threats


  External forces that are harmful to the business which cannot be controlled and needs mitigation
• Financial Forecast


  A tool that presents estimated information based on past, current, and projected financial conditions which helps identify future revenue and expenditure trends that may have an immediate or long-term influence on government policies, strategic goals, or community services

  
• Sales Forecast


  A projection of sales of a product expressed either units or absolute monetary value
• A sale forecast that is too conservative will result in lost sales while an ambitious forecast will cause a firm to invest in resources more than what is necessary
• Projected Financial Statements


  Present a firm's expected financial position, future results of operations and expected cash flows

  
• Projected Financial Statements


  • Projected SCI
  • Projected SFP
  • Projected SCF
• Determinants of Projected Financial Statements

  • Market Conditions
  • Economy
  • Competitive Position of the Firm
  • Investment Climate
  • SWOT Analysis
• The firm projects an increase in the sales of 20% because of recorded market growth in the current year
• No dividend payments made to the stockholders
• Interest payment for the year amounting to P500 was incurred from the previous notes payable and long-term debts plus the additional loan that was secured to buy new equipment worth P3,500
• The company expects to sell more products on credit. Accounts receivable is expected to increase by 20% with half of it expected to be collected before the end of the year
• Sales will significantly improve driven by a strong economic outlook for the country. The company will double its inventory at the start of the year and expects to decrease its stock by 60% by the end of the year
• The company pays interest on its loan at the beginning of the year for the agreed rate per annum of 10%
• Depreciation on the plant and equipment is the same as in 2020
• Assume the projected net income for 2021 to be P 717,600
• Budget


  A statement of projected sales, expenses, income and other financial transactions for the coming period used for planning and controlling

  
• Financial forecasts


  Predictions on the financial health of the company considering the past and future trends
• Budgets


  More concrete financial plans with defined time frame which includes specific targets and volumes the company aims to achieve for the upcoming period such as planned revenue or target sales or even receivables

  
• Steps in Budget Preparation

  • Prepare the sales forecast
  • Determine the production volume in support of the sales forecast
  • Estimate the manufacturing costs and operating expenses
  • Estimate cash flow
  • Prepare the financial statements for the purpose

  
• Components of Operating Budget

  • Sales Budget
  • Production Budget
  • Direct Materials Budget
  • Direct Labor Budget
  • Factory Overhead Budget
  • Ending Inventory Budget
  • Selling and Administrative Expense Budget

  
• Sales Budget


  Indicates the number of units a firm expects to sell and is multiplied by the selling price which considered as the determinant of all the other budgets include
• Plans


  With defined time frame which includes specific targets and volumes the company aims to achieve for the upcoming period such as planned revenue or target sales or even receivables