What is a Budget?

• A budget is a road map of where you want to go and how you expect to get there.

• Budgets are used for:1. Board Oversight2. Goal Focus3. Financial Control

Capital InvestmentsPurpose of Budgets

Click icon to add chart

Planning

Communication

Motivation

Control and

Evaluation

Some of the major advantages of budget

planning are:

Prevent overspending

Considers unexpected expenses

to maintain standard of

living

• Budgeting flow:

Analyzing previous financial

statements

Estimating upcoming expenses

Estimated cash out

flowIdentifying cash inflow

Identify the means to

increase the inflow if

necessary

Preparing the estimated financial

statement

Comparing actual

expenses with

budget

Analyze the reasons for deviation

Feed back to

budgeting department

Budgeting and accounting

Benefits

Essentials of effective budgeting

Length of budget period

Budgeting process Budgeting and human behavior

Budgeting and long-range planning

The master budget

Sales

Production

Direct materials

Direct labor

Manufacturing overhead

Selling and administrative expense

Budgeted income statement

Merchandisers

Service

Not-for-profit

Cash

Budgeted balance sheet

Budgeting Basics

Budgeting Basics

Preparing the Operating Budgets

Preparing the Operating Budgets

Preparing the Financial Budgets

Preparing the Financial Budgets

Budgeting in Non-Manufacturing Companies

Budgeting in Non-Manufacturing Companies

Budgetary PlanningBudgetary Planning

THE ACTIVITY BASED BUDGET PROCESS

Budget Expenses

Determine Programs and Activities

Budget Revenues

Assemble Draft Budget

Review and Modify Draft Budget

Present Budget Draft for Board Approval

Monitor and Amend Budget

Participative BudgetingParticipative Budgeting

SO 2: State the essentials of effective budgeting.

Flow of budget data from lower management to top levels

Illustration 23-1

Capital Investments, Inc. | 1234 East Main Street | Anycity, State, 12345

P: (123) 456-7890 | F: (123) 456-7890 | E: info@capitalinvestments.com | www.capitalinvestments.com

Capital Investments

The Master Budget - ComponentsThe Master Budget - Components

SO 3: Identify the budgets that comprise the master budget.

Illustration 23-2

Five Principles of Cash Management

Illustration 7-13

•

Sources of Finance, Capital Structure,Capital Budgeting Case Period:2008-2009Pub. Date:2009Teaching AvailableOrganization:Tata Motors Industry:Automobiles Countries:UK/India

Issues:• » Understand acquisition of JLR as an example of Tata Motors'

inorganic growth strategy.

» Understand the impact of macroeconomic factors on the global automobile industry.

» Understand the implications of global credit crisis on the availability of funds for corporate.

» Analyze different modes of finance available to finance cross border acquisitions.

• Thank you