What is financial reporting?

• Financial reporting is the process of documenting

and communicating financial activities and
performance over specific time periods, typically
on a quarterly or yearly basis.
• Companies use financial reports to organize
accounting data and report on current financial
status.
• Financial reports are also essential in the
projections of future profitability, industry
position and growth, and many financial reports
are available for public review
• Tracking cash flow
• Evaluating assets and liabilities
• Analyzing shareholder equity
• Measuring profitability
 Importance of financial reporting

• Monitors income and expenses

• Ensures compliance
• Communicates essential data
• Supports financial analysis and decision-
making
 Types of financial reports

1. Balance sheet
2. Income statement
3. Cash flow statement
4. Statement of shareholder equity
 Who uses financial reports?

• Investors, shareholders and creditors:

• Executive managers:
• Regulatory institutions
• Industry consumers
• Unions and employees

Source-https://www.indeed.com/career-advice/career-development/what-is-financial-
reporting
 Unit-4 Capital Budgeting
• Definition- A budget is an estimation
of revenue and expenses over a specified future
period of time and is usually compiled and re-
evaluated on a periodic basis.

• Budgetary control
 Objective of Budget
• To get more economic use of capital
• To prevent waste and reduce expenses
• To coordinate the activities of various
department
• To plan and control income and expense of firm
• To fix responsibility in different department
• To ensure availability of working capital
 Budgetary Control
• It is process in which budget is set and actual is
compared to with budget to analyse variances.
• Continues evaluation of actual budget and its
revision if necessary
• Objective of Budgetary Control
• To provide detailed plan of action of business for
specific duration
• To coordinate different units and activities of
organization in view of utilization of resources
• To motivate organizational members to perform
well
• Exercise control on cost by comparison of actual Vs
planed budget
Based on time Long-term Budget and Short-term Budget.

• Long-term Budget-Planning operations of an

organization for a period of 5 to 10 years. The long-
term budget may be adversely affected due to
unpredictable factors..
• Example: Research and Development Budget,
Capital Expenditure Budget, etc.
• Short-term Budget
• This budget is drawn usually for 1 year. Sometimes a
budget may be prepared for a shorter period (like
monthly budget, quarterly budget, etc.). Short-term
budgets are prepared in detail and these budgets
help to exercise control over day-to-day operations.
• Example: Material Consumption Budget, Labor
Utilization Budget, Cash Budget, etc
Based on Condition -Basic Budget and Current Budget.
.
• Basic Budget
• A budget that is established for use as unaltered over a long
period is called Basic Budget.
• This budget does not take into consideration changes
occurring from the external environment which are beyond
the control of management. This budget is more useful for
top-level management for formulating policies.
• Current Budget
• A budget that is established for use over a short period and
is related to the current conditions is called the Current
Budget. This budget is adjusted to the current conditions
prevailing in the business.
Based on Function - Master Budget, and Functional
Budgets
.
• Master Budget
• The final integration of all functional budgets by the
Budget Officer provides the Master Budget. When
functional budgets have been completed, the Budget
Officer prepares the Master Budget.
• Master Budget is the summary budget incorporating its
component functional budgets
• Functional Budgets
• Functional Budgets relate to functions of the business
such as product sales etc. In other words, Functional
Budgets are prepared in respect of various functions
performed in a business.
Functional Budgets

• Sales Budget;
• Production Budget;
• Material Budget;
• Labor Budget;
• Production Overhead Budget;
• Administration Overhead Budget;
• Selling & Distribution Overhead Budget;
• Plant Utilization Budget;
• Cash Budget
• Research & Development Budget and more.
 Cost estimates and Budgeting in Civil
Engineering project
• Role in preconstruction and construction phase
• Cost associated with construction facilities
– Initial capital cost, Operation ,Maintenance
• Capital cost- Land acquisition, planning, architectural and
engineering design, material ,Equipment ,Field supervision,
Insurance ,Tax, Inspection & testing
• Operation & M- Land rent ,Operating staff, Utilities
• Types of Construction Cost estimate-
1. Design estimate 2. Bid estimate 3. Control estimate
 Capital Budgeting
• "What is capital budgeting?" -is that it is a
financial management tool that companies
employ to assess a project's potential risk and
expected long-term return on investment. It is
also known as an investment appraisal
 Objective of Capital budgeting

1. To find out profitable expenditure

2. To know whether the replacement of any
fixed assets gives more return than earlier
3. To decide specific project
4. To find quantum of finance for capital
expenditure
5. To asses sources of finance
6. To evaluate merit of each proposal
• Example –
• Rs 1000 principal Paying 10 % interest after 3
years pays