Introduction to Management Accounting
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Introduction to Management
Accounting
Chapter 7
Introduction to Budgets
and Preparing the Master
Budget
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Learning
Objective 1
Budgets and the Organization
Budgets
Goals and
objectives
A budget provides a comprehensive financial
overview of planned company operations.
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Benefits of Budgets
1. Compel
managers
to think
ahead
2. Provide an opportunity to
reevaluate existing activities
and evaluate new ones.
3. Aid managers in communicating
objectives and coordinating actions
across the organization.
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Learning
Objective 5
Types of Budgets
Strategic plan
Long-range planning
Master budget
Capital budget
Continuous budget
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Strategic Plan
The most forward-looking budget is the
strategic plan, which sets the overall
goals and objectives of the organization.
The strategic plan leads to long-range
planning, which produces
forecasted financial statements
for five- to ten-year periods.
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Long-range Plans
Long-range plans
are coordinated with capital budgets,
which detail the planned expenditures
for facilities, equipment, new products,
and other long-term investments.
Master budgets link to both long-range
plans and short-term budgets.
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Master Budget
The master budget
is a detailed and
comprehensive analysis
of the first year of the
long-range plan.
It summarizes the
planned activities
of all subunits of
an organization.
Sales
Production
Distribution
Finance
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Continuous Budget
Rolling budgets...
are a common form of
master budgets that
add a month in the
future as the month
just ended is dropped.
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Master Budget
Operating budget
(Profit plan). . .
Financial budget. . .
Focuses on the
Income Statement
and supporting
schedules or
budgeted
expenses.
Focuses on the
effects that the
operating budget
and other plans will
have on cash
balances.
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Learning
Objective 6
Steps in Preparing the Master
Budget
1. Basic data
2. Operating budget
3. Financial budget
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Steps in Preparing the Master Budget
The principal steps in preparing
the master budget:
1. Basic data
a. Sales budget
b. Purchases budget
c. Cost-of-goods sold budget
d. Operating expense budget
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
Steps in Preparing the Master Budget
Operating Budget
Prepare budgeted income statement using basic data in step
Financial Budget
3. Prepare forecasted financial statements:
b. Capital budget
c. Cash budget
d. Budgeted Balance sheet
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
The End
End of Chapter 7
Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahl
