1. Preparing & Controlling The Annual Budget
Preparing & Controlling The Annual
Budget
- Session FOUR -
- Session FOUR -

2. Outline
Section Page
Definition of the Master Budget 3
Components of the Master Budget 4
Components of the Budgeted Balance Sheet 8
Account Receivable 9
Inventory Account 13
Fixed Assets Account 17
Account Payable 21
Additional Components of the Budgeted Balance Sheet 25
Testing the Budgeted Balance Sheet 26
Cash Impact on the Budgeted Balance Sheet 30
The Financing Budget 31
Case Study 1 – Sample Balance Sheet _ Master Budget 36
Case Study 2 – Sample Statement of Income _ Master Budget 39
Conclusion 52

3. Components of the Budgeted Balance
Sheet
Components of the Budgeted Balance Sheet
The key elements of the balance sheet that require estimation
are:
Accounts
receivable
Accounts
Inventory
payable
Fixed
assets

4. Additional Components of the Budgeted
Balance Sheet
Components of the Budgeted Balance Sheet – Additional
Elements
There are a few other line items in the balance sheet that
require estimation for the budget period. These items are
usually adjusted manually, rather than through the use of
any formulas. They are:
Prepaid expenses
Equity Other assets
Income taxes
Notes payable
payable
Accrued liabilities

5. Cash Impact on the Budgeted
Balance Sheet
Turnover Table
Type of Turnover Cash Impact Caused By
Acc. Receivable More aggressive collection activity,
Cash increases
turnover - Increase tighter credit policy
Acc. Receivable Less collection activity, looser credit
Cash decreases
turnover - decrease policy
Reduce safety stock levels, use just-in-
Inventory turnover –
Cash increases time deliveries, reduce number of
Increase
product options
Inventory turnover – Increase safety stock elvels, engage in
Cash decreases
Decrease bulk purchases
Pay suppliers quicker, take early
Acc. Payable turnover
Cash decreases payment discounts, use suppliers wth
- Increase
shorter payment terms
Pay suppliers more slowly, stop taking
Acc. Payable turnover
Cash increases early payment discounts, use suppliers
- Decrease
with longer payment terms

6. The Financing Budget (2/5)
The Financing Budget
This budget addresses
Obtain a loan
the need of a business
for more cash. You can
construct a financing
budget that addresses Sell stock
this need in two ways:

7. The Financing Budget (3/5)
The Financing Budget
Cost reduction
Discretionary
items
Other Financing Dividends
Solutions
Sales growth
Sell assets

8. Case Study 1 –
Sample Balance Sheet - Master Budget

9. Case Study 2 –
Sample Statement of Income - Master Budget

10. Conclusion
In a smaller business, the key component of the master
budget is the budgeted income statement.
However, this simple version of the master budget lacks a
comparison to the financial position of the business during
the budget period. You need this additional information to
ascertain whether the company has the financial resources
to support the level of business activity shown in the
budgeted income statement.

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