JOSIE D. ALBAO DOST V-PMU Financial Assumptions Financial Projections Return on Investment Partial Budget Analysis

Financial Accounting Information - a means to an end - historical in nature - results from inexact and approximate measures of business activity - approximate measures of business activity - based on general-purpose assumption

Objectives of Financial Accounting Information for External Parties Provide information useful to the enterprise in: - making investment and credit decisions - assessing amount, timing, and uncertainty of future cash flows - Learning about enterprise's economic resources, claims to resources, and changes in claims to resources

Objectives of Financial Accounting Information for Internal Parties Provide information useful to the enterprise in: - achieving its goals, objectives and mission - assessing past performance and future directions - evaluating and rewarding decision-making performance

Financial Statement - A monetary declaration of what is believed to be true about the business - describes in financial terms certain attributes of the enterprise that fairly represent its financial activities - prepared at least annually

Primary Financial Statements 1. Statement of financial position (balance sheet) - a position statement that shows where the enterprise stands at a specific date - snapshot of a business in financial terms Assets = Liabilities + Owner’s Equity

Balance Sheet Three (3) sections: 1.Assets - economic resources owned by firm & expected to benefit future operations 2. Liabilities - financial obligations or debts 3.Owner’s Equity - owner’s claims on the assets of the business

Primary Financial Statements 2. Income Statement - is an activity statement that shows the revenues and expenses for a designated period of time (year, quarter, month) Revenue – Expenses = Net Income

Primary Financial Statements 3. Statement of cash flows - an activity statement that shows the details of the enterprise's activities involving cash during a period of time - important in understanding an enterprise for purposes of investment and credit decisions

Cash Flow Classified into 3 sections: 1.Cash flows from operating activities 2.Cash flows from investing activities 3.Cash flows from financing activities

Audits of Financial Statements Audit is an investigation of a firm's financial statements, designed to determine the fairness of these statements. Accountants and auditors use the term “fair” in describing financial statements that are reliable and complete, conform to generally accepted accounting principles, and are not misleading.

Financial Reporting Timeline Time Statement of Financial Position/ Balance sheet Date at beginning of period Date at end of period Income Statement Statement of cash flows Statement of Financial Position/ Balance sheet The balance sheet, income statement, and statement of cash flows relate closely to each other.

Assets Cash16, Accounts Receivable 1, Property, Plant, Equipment 100, , Liabilities Notes Payable30, Accounts Payable7, Owner's equity Capital stock80, Retained earnings , Balance Sheet Revenues2, Expenses1, Net Income Income Statement Operating Activities Investing Activities(64,000.00) Financing Activities80, Change in cash16, Beginning cash balance 0 Ending cash balance16, Statement of cash flows

Financial Reporting and Financial Statements Statement of cash flows Balance Sheet Income Statement Other Information: *Industry *Competitors *National Economy

Master Budget = Financial Projections

Master Budget is

Why do we prepare an MB?

Components of a Master Budget 1.Operating Budgets a. Sales Budget b. Production budgets including: - units to produce - direct materials - direct labor - overhead c. Cost of goods manufactured and sold budget d. Selling & Administrative expense budget

- marketing - administrative expenses - research and development e. Cash Budget f. Financial Budgets - Budgeted income statement - Budgeted balance sheet - Budgeted cash flow statement - Capital expenditures budget

How to prepare the Master Budget/ Financial Projections

Steps in preparing the Master Budget 1.Prepare a sales forecast 2.Prepare budgets for production, manufacturing costs, and operating expenses 3.Prepare a budgeted income statement 4.Prepare a cash budget 5.Prepare a budgeted balance sheet