AIRs LM Business-Finance Q1 Module-4

Senior High School
Business Finance
Module 4 :
AIRs - LM
LU_Business Finance_Module 4
Budget Preparation
ABM – BUSINESS FINANCE
Module 4: Budget Preparation
Second Edition, 2021
Copyright © 2021
La Union Schools Division
Region I
All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.
Development Team of the Module
Author: Iren F. Abenes

Editor: SDO La Union, Learning Resource Quality Assurance Team
Content Reviewer: Clarita C. Montemayor
Language Reviewer: Ronald June Balsomo
Illustrator: Ernesto F. Ramos Jr.
Design and Lay-out: Angela Pauline C. Ganuelas
Management Team:
Atty. Donato D. Balderas, Jr.
Schools Division Superintendent
Vivian Luz S. Pagatpatan, Ph.D
Assistant Schools Division Superintendent
German E. Flora, Ph.D, CID Chief
Virgilio C. Boado, Ph.D, EPS in Charge of LRMS
Lorna O. Gaspar, EPS in Charge of ABM
Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II
Printed in the Philippines by: _________________________
Department of Education – SDO La Union

Office Address: Flores St. Catbangen, San Fernando City, La Union
Telefax: 072 – 205 – 0046
Email Address: launion@deped.gov.ph
Senior High School
Business Finance
Module 4:
Budget Preparation
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear
learners, can continue your studies and learn while at home. Activities,
questions, directions, exercises, and discussions are carefully stated for you
to understand each lesson.
Each SLM is composed of different parts. Each part shall guide you
step-by-step as you discover and understand the lesson prepared for you.
Pre-tests are provided to measure your prior knowledge on lessons in

each SLM. This will tell you if you need to proceed on completing this
module or if you need to ask your facilitator or your teacher’s assistance for
better understanding of the lesson. At the end of each module, you need to
answer the post-test to self-check your learning. Answer keys are provided
for each activity and test. We trust that you will be honest in using these.
In addition to the material in the main text, Notes to the Teacher are
also provided to our facilitators and parents for strategies and reminders on
how they can best help you on your home-based learning.
Please use this module with care. Do not put unnecessary marks on
any part of this SLM. Use a separate sheet of paper in answering the
exercises and tests. And read the instructions carefully before performing
each task.
If you have any questions in using this SLM or any difficulty in

answering the tasks in this module, do not hesitate to consult your teacher
or facilitator.
Thank you.
Target
In the previous lesson, you identified the steps in the financial planning
process. Planning alone, however, is insufficient. Control is also necessary to
ensure that plans actually are carried out. These two management functions
reinforce each other and both are very important for the success of an organization.
A budget is a tool that managers use to plan and control the use of scarce
resources. A budget is a plan showing the company’s objectives and how
management intends to acquire and use resources to attain those objectives. It is a
managerial process of mapping out corporate actions based on past and present
data trends are planning and forecasting. Since forecasts are predictions of future
events, plans often use forecasts in order to inform the decision-making process.
This module will provide you information and activities that will help you
understand the financial planning process on budget preparation and a projected
financial statement.
After going through this module, you are expected to attain the following
objectives:
Learning Competency:
• Illustrate the formula and format for the preparation of budgets and projected
financial statement, (ABM_BF12-IIIc-d-11)
Subtasks:
1. Know the tools used in planning, forecasting and budgeting

2. Explain the tools used in planning, forecasting and budgeting
3. Apply the tools used in planning, forecasting and budgeting
Before going on, check how much you know about this topic. Answer
activities
the
on the next page in a separate sheet of paper.
Jumpstart
Activity 1. Choose your answer from the given choices. Use a separate
sheet for your answers.
_____ 1. It is the most important account in the financial statement in making

forecast.
A. Accounts Receivable
B. Owner’s Capi.al
C. Property, Plant & Equipment
D. Sales
_____ 2. One of the macroeconomic variables that plays an important role in

forecasting sales.
A. Financial resources of the Company
B. GDP rate
C. Management style of manager
D. Production capacity
_____ 3. What external factor influencing sale is this – “consider the consumer
changing trends.”
A. Competition
B. Development in the industry
C. Economic Crisis
D. Regulatory environment
_____ 4. What factor influencing sales does NOT belong to the group?
A. Competition B.
GDP rate
C. Inflation rate
D. Interest rate
____ 5. What word makes the statement false – “Products and services which have
more developments in the industry would likely have a lower forecast than a
product or service in the slow-moving industry?”
A. Lower B. More C. Product D. Slow
Discover
Figure 1. Factors that Influence Sales
Sales Budget
How a sales budget is formulated?
Sales is the most important account in the financial statement in making

forecast since most of the expenses is correlated with sales. In Financial Statement
Analysis, the cost of sales ratio, gross profit ratio, and variable operating expenses
ratio are based on the sale figure.
External and Internal Factors influencing Sale:
❖ Macroeconomic Variables (External)
Such factors that are included in Macroeconomic variables are GDP rate,
inflation rate, interest rates,
foreign exchange, foreign
exchange rate, among
others play an important role in forecasting. Those external factors tell how
much the consumers are willing to spend. A low GDP rate and a high
inflation rate means that consumers are spending less on their purchase of
goods and services. In this case, we should not forecast high sales of the
periods of low GDP.
❖ Development in the Industry (External)

The products and services with more developments in the industry would
likely have a higher sales forecast than a product or service in a slow-moving
industry. The consumer trends are always changing. The industry should be
competitive to be able to attract to more customers and be able to stay in the
market. If there are 3 other sellers then you have to divide the sales into 4
and also consider the preference of your consumers.
❖ Competition (External)
Suppose you are the only one selling bread in your community and each
family in your community eats an average of one loaf bread a day, you have
to consider how many families in your community for your sales forecast.
❖ Production Capacity and man power (Internal)

Suppose you have already evaluated the macroeconomic factors and
identified that your product has a very strong market and consumers are
very willing to buy from you. You forecasted that you will be able to sell 500
units of your product but you have only 10 employees who are able to
produce 10 units each. Your capacity cannot cover your expected demand.
To be able to increase capacity, you should be able to expand your
operations.
Production Budget
What is production budget and how it is formulated?
Production budget provides information regarding the number of units that

should be produced over a given accounting period based on expected sales and
targeted levels of inventories.
Computation of Production Budget
Note: Ending inventory of current period is beginning inventory of next period.
Example:
- A Company forecasts sales in units for January to May as follows:
• A Company would like to maintain 100 units in its inventory at the

end of each month.
• Beginning inventory at the start of January amounts to 50 units.
• How many units should A Company produce in order to fulfill the
expected sales of the company? Answer:
Budgeting Cash
What is Operation Budget and how it is formulated?
Operation budget refers to the variable and fixed costs needed to run the
operations of the company but are not directly attributed to the generation of sales.
Examples: Rent Payments, Professional Fees, Wages & Salaries of selling and
administrative personnel, Administrative Costs, Travel and representation expense,
Professional fees, Interest Payments and Tax Payments
Cash Budget
Cash budget or cash forecast is a statement of the firm’s planned inflows and
outflows of cash. It is used by the firm to estimate the short-term cash
requirements with particular attention being paid to planning surplus cash and for
cash shortages. (Gitman & Zutter, 2012)
What is the importance of a cash budget and how it is formulated?
For a business enterprise, having the right amount of cash is important.

Cash is used to make payments for purchases, for operational expenses, to
creditors and for other transactions.
Cash budget forecast the timing of these cash flows and matches them with
cash flows from sales and other receipts. It is also a control tool to monitor the way
the company handles cash
Below is the general form of the Cash Budget:
The following are the steps in formulating a cash budget:
A. Form the sales forecast, identify how much would be collected in the cash
budget period. Sales may be made in cash or for credit. Cash sales are translated to
cash at the point of sale while credit sales are collected depending on the credit
period. Credit periods may range from 10 days to more than a month depending on
the strategy of the company.
- Continuing the previous example, assume selling is PHp100/unit. Sales for each
month are expected to be collected as follows:
- Month of sales: 20% - 2 months after sales: 30%
- A month after sales: 50%
How much is total receipts from sales?
Answer:
Jan Feb Mar Apr May Total

Units 2,000 2,200 2,500 2,800 3,000 12,500
Sales in Pesos 200,000 220,000 250,000 280,000 300,000 1,250,000
Collection from current 40,000 44,000 50,000 56,000 60,000 250,000
months sales
Collection from previous 100,000 110,000 125,000 140,000 150,000
months sales
Collection from two months 60,000 66,000 75,000 84,000
prior sales
Total Collection from Sales 40,000 144,000 220,000 247,000 275,000 926,000
B. Identify other receipts.

Examples:
interest received issuance of capital stocks
return on principal investments proceeds from borrowings proceeds from
sale of non-operating assets
- Add these receipts to the collection from sales to get to total receipts.
C. From the Production Budget, identify how much of the purchases made will be
paid by the company on the cash budget period. Like sales, purchases may be
made on in cash or on credit depending on the supplier’s credit terms.
- Continuing from the previous example:
* Assume the cost per unit is Php 50.
* All purchases this month are paid the following month. How much is total
cash disbursements for purchases?
D. From the operations budget, identify which expenses will be paid in cash during
the cash budget
- The following expense items will be paid based on the following periods:
* Rent payment: Rent of Php5,000 will be paid each month.
* Wages and salaries: Fixed salaries for the year are Php96,000, or Php8,000
per month. Wages are estimated as 10% of monthly sales. * Tax payments:
Taxes of Php25,000 must be paid in April. E. Identify all other cash
payments to be made:
Examples:
* Fixed asset purchase in cash * repurchase of common stock
* Cash dividend payments * Purchase of stock/bond
7
* Principal payments investment
- It is important to recognize that depreciation and other noncash charges are
NOT included in the cash budget.
The following item will be paid based on the following periods:

* Fixed-asset outlays: New machinery costing Php130,000 will be purchased
and paid for in April.
* Interest payments: An interest payment of Php10,000 is due on May.
* Cash dividend payments: Cash dividends of Php20,000 will be paid on
January.
* Principal payments (loans): A Php20,000 principal payment is due in
February.
Answer:
F. Match the receipts and disbursements on the periods they become collectible
and payable respectively.
G. Set a minimum required balance. The balance is maintained in case

contingencies arise.
H. If the net cash flows are above the minimum cash balance, the company is in
excess cash and may consider putting it in short-term investments. If it is below,
the company should make a short-term borrowing during that period.
- Moreover, A Company has a beginning cash balance of Php80,000 and would like
to maintain an ending cash balance of Php100,000 per month. Prepare A
Company Cash Budget for January to May. - Prepare a cash budget.
Evaluating the Cash Budget
* If the ending cash balance after payment of all the required disbursements is
less than the required ending balance, the company needs to borrow
additional cash from short term borrowings to meet the required ending
balance. Should the ending cash balance exceed the company’s minimum
cash requirement the next period, the company may be able to repay the
loan plus accrued interest.
* Should the Company have excess cash above its required maintaining cash
balance, the company may invest this cash on short term investment so that
it will have an opportunity to earn additional profits. If the company’s cash
balance would then fall, below minimum cash requirement the company
may withdraw the investment to be able to meet the required cash balance.
Projected Financial Statement
Purpose of Projected financial statement

Projected Financial Statement is a tool of the company to set an overall
goal of what the company‘s performance and position will be for and as of the end
of the year. It sets targets to control and monitor the activities of the company.
The following reports may be forecasted:

• Projected Income Statement
• Projected Statement of Financial Position
• Projected Statement of Cash Flows
Below are historical financial statements
Figure 2. Income Statement of (A) Company
Figure 3. Statement of Financial Position of (A) Company
Steps on Financial Statement Projection

A. Forecast Sales
A sales forecast is an estimation of sales volume that a company can expect
to attain within the plan period. A sales forecast is not just a sales predicting but it
is the act of matching opportunities with the marketing efforts. Sales forecasting is
the determination of a firm’s share in the market under a specified future. Thus,
sales forecasting shows the probable volume of sales.
- Example exercise on financial statement projection with the Projected Income

Statement.
- Information:
Sales are expected to increase by 10% in 2015 from the 2014 sales level.
This growth assumption is based on the assessment of the external and
internal factors related to the Company and the historical growth of the
company. The company’s sales grew by 10.3% annually from 2010 to
2014.
Answers: Projected Sales in 2015 = Net Sales 2014 x (1 + 10%)

Projected Sales in 2015 = 5,250,000 x (1 + 10%) = 5,775,000
Blank Pro-forma Financial Statement:
10
Figure 4. Blank pro-forma of Projected Income Statement
Figure 5. Blank pro-forma of Projected Statement of Financial Statement
B. Forecast Cost of Sales and Operating Expenses

- In determining the cost of sales and operating expenses, variable and fixed
cost should be identified.
- Cost of sales are direct cost associated in the generation of sales. One way of
projecting cost of sales is using the cost of sales ratio. Companies would
generally have a consistent historical cost of sales ratio. The company may
use this as a starting point.
- Suppose that the company has an average of 60% cost of sales ratio. In
doing projections, the financial manager may use the same average ratio or,
if the company is pushing for efficiency, the financial manager may reduce
this ratio to say 57% depending on the judgment.
- Operation costs are a mix of variable and fixed cost. Variable costs usually
vary with sales. To project these costs, the percentage of sales method may
11
be used. On the other hand, fixed costs remain the same no matter how the
volume of sales has changed.
The Company wants to maintain the same gross profits per year as 2014.
Variable operating expense is 5% of sales.
Depreciation expense is 5% of the gross beginning balance of property,

plant, and equipment. As of December 31,2014, the gross balance of PPE
is Php5,200,000. For January 2015, Php1,000,000 new PPE will be
acquired. It is the policy of the company that PPE acquired in the first half
of the year will be depreciated for one full year.
- Compute for the Cost of Sales, Variable Operating Expense and Depreciation
Expense.
Cost of sales percentage in 2014 = (4,305,000 ÷ 5,250,000) x 100%
Cost of sales percentage in 2014 = 82%
Projected cost of sales in 2015 82% x 5,775,000
Projected cost of sales in 2015 4,735,500

Variable (5% x Sales of 5,775,000) 288,750
Fixed (depreciation expense)
(5,200,000 + 1,000,000) x 5% 310,000
Total operating expenses 598,790
- Compute for the net PPE
PPE net, beginning 2,440,000

Additions 1,000,000
Less: Depreciation 310,000
PPE net end 3,130,000
C. Forecast Net Income and Retained Earnings
- To forecast net income, interest expense and income tax should also be
considered using the relevant interest and tax rates. Retained earnings is arrived
at by adding projected net income to beginning retained earnings then deducting
dividends to be declared during the year.
- Note this information. Return to this when all income statement items are
complete.
Income tax rate is 30% of the income before taxes. 75% of the income
tax expense will be paid in 2015 while balance will be paid in 2016.
D. Determine balance sheet items that will vary with sales or whose balances
will be highly correlated to sales.
12
- Balance sheet items that may vary with sales or will be highly correlated with
sales are cash, accounts receivable, inventories, accounts payable, and accrues
expense payable.
Compute as follows:
The following financial statement accounts are expected to

vary with sales based on the 2014 financial statements:
A. Cash
B. Trade accounts receivables
C. Inventories
D. Other current assets
E. Trade accounts payables
Cash
Cash as a percentage of sales in 2014 = (1,060,000 ÷ 5,250,000) x 100%
Cash as a percentage of sales in 2014 = 20.19%
Projected cash in 2015 = 20.19% x 5,775,000
Projected cash in 2015 = 1,165,973
Accounts receivable
Accounts receivable as a % of sales in 2014 = (2,300,500 ÷ 5,250,000) x 100%

Accounts receivable as a % of sales in 2014 = 43.82%
Projected accounts receivable in 2015 = 43.82% x 5,775,000
Projected accounts receivable in 2015 = 2,530,605
Inventories
Inventories as a % of sales in 2014 = (4,850,000 ÷ 5,250,000) x 100%

Inventories as a % of sales in 2014 = 92.38%
Projected inventories in 2015 = 92.38% x 5,775,000
Projected inventories in 2015 = 5,335,945
Other current assets
Other current assets as a % of sales in 2014 = (1,050,000 ÷5,250,000 x 100)

Other current assets as a % of sales in 2014 = 20%
Projected other current assets in 2015 = 20% x 5,775,000
Projected other current assets in 2015 = 1,155,000
Accounts Payable
Accounts Payable as a % of sales in 2014 = (5,050,000 ÷ 5,250,000) x 100%
Accounts Payable as a % of sales in 2014 = 96.19%
Projected other accounts payable in 2015 = 96.19% x 5,775,000
Projected other accounts payable in 2015 = 5,554,973
13
E. Determine Payment schedule for loans - Compute for the interest expense:
As of December 31, 2014, there are two long-term loans. Both have an
annual interest rate of 8%.
A. The first loan will mature on June 30, 2015 and the remaining
principal balance to be paid on June 30, 2015 is Php1,250,000.
B. The second loan which was incurred on December 31, 2014 is paid
at the rate of Php500,000 principal balance every June 30 and December
31.
New loans of Php3,500,000 will be incurred on December 31, 20015

payables at the rate of Php500,000 every June 30 and December 31.
Annual interest is expected 8%.
First Loan
Interest from January 1 to June 30,2015 1,250,000 x 8% x

(6mos. ÷ 12 mos.) 50,000
Second Loan
Interest from January 1 to June 30,2015

1,000,000 + 2,000,000 x 8% x (6mos. ÷ 12 mos.) 120,000
Interest from January 1 to June 30,2015 100,000 (500,000 +

2,000,000) x 8% x (6mos. ÷ 12 mos.)
Total interest expense for 2015 270,000
Complete projected income statement as follows:
Compute for Income Tax Payable:
Projected Income Tax Payable in 2015: 51,225 x (1-75%) = 12,806 -

Compute for current and non-current portion of a long-term assets:
14
f. Check for other information
Cash dividends of Php300,000 will be paid for 2015.

Other non-current assets and other current liabilities will remain
unchanged.
- Compute for retained earnings:

Retained earnings, beginning 2,122,069
Add: Net Income 119,525
Less: Dividends (300,000)
Retained earnings, end 1,941,594
G. Determine external funds needed (EFN)
H. Determine how external funds needed may be financed.

External Funds Needed is a plug figure to make projected assets equal
projected liabilities and shareholder’s equity.
EFN = change in total assets – (change in total liabilities + total change in

stockholders’ equity)
2015 Balances Without EFN 2014 Balances Change

Total Assets 14,152,212 12,536,189 1,616,023
Total Liabilities 11,153,379 9,414,120 1,739,259
Total Stockholder's
Equity 2,941,594 3,122,069 180,475
EFN 52,239
* A positive value for EFN, means that the company needs more funds
equivalent to the positive value of EFN.
* A negative value for EFN, means that the company has excess cash.
15
Complete Financial Statement (FS) as follows:
Figure 6. Projected 2015 Statement of Financial Position of A Company
Figure 7. Projected 2015 Statement of Cash Flows of A Company
16
Explore
Activity 2. Prepare a blank Projected Statement Financial Position. Arranged

the accounts on their respective places. Choose your answers inside the box.
Copy the pro-forma and write your answers on a separate sheet of paper.
Choices:
Cash Income taxes payable Non-current assets
Non-current liabilities Other current assets Other current liabilities
Total Current Assets Total liabilities Total Stockholder’s equity
Deepen
17
Direction: Answer the following activities where you are going to apply the
steps in preparing a budget and prepare a projected statement of financial
position.
A. Prepare a Production Budget
A company forecasts sale in units for January to May as follows:
- ABC Company would like to maintain 100 units in the ending inventory at the
end of each month.
- Beginning inventory at the start of January amounts to 50 units.
- How many units should ABC Company produce in order to fulfill the expected
sales of the company?
- Use the table below as your guide.
B. Prepare Cash Budget
1. Compute for the total collection from sales

- Continue the previous activity. Assume the price is Php110/unit.
- Sales for each month are to be collected as follows:
* Month of sales: 20%
* A month after sales: 50% * 2 months after sales: 30%
- How much is the total receipts?
Use the table below as your guide.
18
C. Prepare a Projected Statement of Financial Position of Sky
Company dated December 31, 2019.
• Below is the list of accounts. Follow the pro-forma Statement of Financial

Position.
Lists of accounts & their respective amount:

Net, PPE – 7,627,900 Cash - 640,000
Accounts payable -5,189,350 Accounts receivable -4,224,948
Owner’s Equity -16,240,315 Short-term investments – 9,495,393
Short-term borrowings: Inventories - 1,076,000
Payable to PPE supplier - 1,200,000
Accrued taxes – 434,575
References
BOOK:
• Arthur S. Cayanan and Daniel Vincent H. Borja, 2017, Business Finance,

856 Nicanor Reyes Sr. St., Sampaloc, Manila: REX Book Store, Inc pp. 52-60
GOVERNMENT PUBLICATION:
• Chairperson: Patricia B. Licuanan, PhD., 2016, Teaching Guide for

BUSINESS FINANCE, 4th Floor, Commission on Higher Education, C.P. Garcia
Ave.,
Diliman,Quezon City: The Commission on Higher Education pp. 141-161
LINKS:
19
• Introduction of Budget:
https://courses.lumenlearning.com/sacanagacct/chapter/introductionto-
budgeting-and-budgeting-processes/
• Define budget:
https://www.google.com/search?q=operating+budget&spell=1&sa=X&ved=2
ahUKEwjTiJix4vjqAhWB62EKHZDIDYMQBSgAegQIEhAl&biw=1242&bih=59
7
• Projected Financial Statements:

https://www.google.com/search?ei=IbgkX8zxC8ytoAT6q3IAQ&q=production
+budget&oq=production+budget&gs_lcp=CgZwc3ktYWIQAzIECAAQQzIECAA
QQzIECAAQQzIECAAQQzICCAAyAggAMgIIADICCAAyAgAMgQIABBDOgQIAB
BHOggIABCxAxCDAToICC4QsQMQgwE6CwguELEDEMcBEKMCOgcIABCxA
xBDOgUIABCxA1DArhJY5NISYNzkEmgAcAF4AIAByAiIAfVZkgEJNC0xLjQuN
S40mAEAoAEBqgEHZ3dzLXdpesABAQ&sclient=psyab&ved=0ahUKEwiMhuL
U4PjqAhXMFogKHXp9CxkQ4dUDCAw&uact=5
• Types of Budget: https://www.marketing91.com/10-types-of-budget/
• What is Budget?: https://www.pinterest.ca/pin/249035054365481149/
• Projected Financial Statements:

https://www.google.com/search?bih=582&biw=1227&hl=en&ei=nrIoX631K
JSs0QS2JCQDw&q=projected+financial+statements&oq=projected+finan&gs
_lcp=CgZwc3ktYWIQARgAMgIIADICCAAyAggAMgIIADICCAAyAggAMgIIADICC
AAyAggAMgIIADoECAAQQzoICAAQsQMQgwE6DgguELEDEIMBEMcBEKMC
OgIILjoFCAAQkQI6CAgAELEDEJECOgUIABCxA1Cy5yFY2owiYK6cImgAcAB4
AIABjQSIAbUckgEMMC4zLjEwLjEuMC4xmAEAoAEBqgEHZ3dzLXdpesABAQ
&sclient= psy-ab
• Importance of Financial Statements Projection:

https://lyfeaccounting.com/blog/what-are-projected-financial-
statementsand-why-do-ineed-them-as-part-of-my-business/
20
For inquiries or feedback, please write or call:
Department of Education – SDO La Union

Curriculum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
launion@deped.gov.ph
lrm.launion@deped.gov.ph
21

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Senior High School

Development Team of the Module

Author: Iren F. Abenes

Printed in the Philippines by: _________________________

Department of Education – SDO La Union

Pre-tests are provided to measure your prior knowledge on lessons in

If you have any questions in using this SLM or any difficulty in

1. Know the tools used in planning, forecasting and budgeting

_____ 1. It is the most important account in the financial statement in making

_____ 2. One of the macroeconomic variables that plays an important role in

Figure 1. Factors that Influence Sales

How a sales budget is formulated?

Sales is the most important account in the financial statement in making

External and Internal Factors influencing Sale:

❖ Macroeconomic Variables (External)

❖ Development in the Industry (External)

❖ Production Capacity and man power (Internal)

Production budget provides information regarding the number of units that

Computation of Production Budget

Note: Ending inventory of current period is beginning inventory of next period.

• A Company would like to maintain 100 units in its inventory at the

What is Operation Budget and how it is formulated?

For a business enterprise, having the right amount of cash is important.

Below is the general form of the Cash Budget:

The following are the steps in formulating a cash budget:

Jan Feb Mar Apr May Total

B. Identify other receipts.

The following item will be paid based on the following periods:

G. Set a minimum required balance. The balance is maintained in case

Projected Financial Statement

Purpose of Projected financial statement

The following reports may be forecasted:

Below are historical financial statements

Figure 2. Income Statement of (A) Company

Steps on Financial Statement Projection

- Example exercise on financial statement projection with the Projected Income

Answers: Projected Sales in 2015 = Net Sales 2014 x (1 + 10%)

Blank Pro-forma Financial Statement:

Figure 5. Blank pro-forma of Projected Statement of Financial Statement

B. Forecast Cost of Sales and Operating Expenses

Variable operating expense is 5% of sales.

Depreciation expense is 5% of the gross beginning balance of property,

Projected cost of sales in 2015 4,735,500

Total operating expenses 598,790

- Compute for the net PPE

PPE net, beginning 2,440,000

PPE net end 3,130,000

C. Forecast Net Income and Retained Earnings

The following financial statement accounts are expected to

Accounts receivable as a % of sales in 2014 = (2,300,500 ÷ 5,250,000) x 100%

Inventories as a % of sales in 2014 = (4,850,000 ÷ 5,250,000) x 100%

Other current assets

Other current assets as a % of sales in 2014 = (1,050,000 ÷5,250,000 x 100)

New loans of Php3,500,000 will be incurred on December 31, 20015

Interest from January 1 to June 30,2015 1,250,000 x 8% x

Interest from January 1 to June 30,2015

Interest from January 1 to June 30,2015 100,000 (500,000 +