1. 12
The Master Budget

2. Budgeting: The Overall Plan
Every organization has a goal (or a set of goals)
Management develops plans to achieve these goals
What type of product to produce
What level of cost and quality
What level of price
What degree of advertising
Inventory and credit policies
Master
Budget
Budget
Formal quantitative expression of management's plans
What things are expected to look like for the upcoming period
Allows for systematic rather than chaotic reaction to change
Supporting
Documents

3. Types of Budgets Strategic Plan
Sets overall goals and objectives for the organization
Capital Budget
Long range plan for investing in and financing long term assets such as buildings and equipment
Master Budget
Yearly projection of revenues, costs and volumes including operating schedules and financial statements
Operating Budget Financial Budget
Sales budget Cash budget
Purchases budget Budgeted income statement
Cost of goods sold budget Budgeted balance sheet
Operating expense budget Capital budget
Continuous Budgets (Rolling Budgets)
Add one month in the future as the current month is completed

4. Master Budget for A Nonmanufacturing Company
Start
Sales budget
Ending inventory
budget
Purchases budget
Operating
Budget
Cost of goods sold
budget
Operating expense
budget
Financial Budget
Capital
budgets
Cash
budget
Budgeted
Balance Sheet
Budgeted
Income Statement

5. Advantages of Budgets Planning Compels managers to think ahead
Budgeting makes planning an explicit management responsibility
Framework for Judging Performance
Provides definite expectations that are the best framework for judging subsequent performance
Benchmark to evaluate current results against
Communication and Coordination
Budgets inform managers of which is expected of them
"Top down" - Management clarifies goals & objectives
"Bottom up" - Managers' plans for achieving objectives
Aids managers in coordinating their efforts, so that the objectives of the organization as a whole match the objectives of its parts

6. Making A Budget Work: Anticipating Human Behaviour
Successful budgeting process requires support from all employees
Lower-level workers and managers' attitudes towards the budget will be heavily influenced by the attitude of top management
Use caution when using budget to evaluate subordinates
Nobody likes someone to check on their performance
Avoid concentrating on managers' failings
Accountant must show how the budget can help everyone achieve better results
Need coordination between what goals are stressed in the budget and what dimensions managers are rewarded on
Everyone must understand and accept the budget as a tool
Budgets which allow managers and employees to participate in the establishment of targets are usually more effective than budgets which are imposed