Management control UNIT 7 Financial budget

Financial budget

7.1 CONCEPT

The financial budget (PF) is the simple projection of income or expenses from different origins in a given
period, or also as courses of action of a financial and economic nature that can modify the projected
results of the company and that, once implemented , give rise to the final product, called “Operational
Financial Budget”.
The financial budget is an absolutely dynamic element and requires permanent updates, since some items
require movement of dates and others affect the amount of the estimates, directly transforming the
structure of said budget.

7.2 BUDGET PERIODS

The PF complements and determines the operational feasibility of the EP, but presents differences when
stipulating the budgetary horizon. The PE can be budgeted for more than one year, but the financial one
cannot because the longer the term, the less precision the financial planning is. The only usefulness of the
financial budget in such a long term is in relation to the net position of income and expenses of items that
do not correspond to economic items, such as loan cancellations, taking credits, etc.
The budgeting period should be the operating year , because it allows taking into account market
conditions in general and each client in particular.
What should be the start and end month of the aforementioned annual period? There are two possibilities,
namely:
1. take the calendar year as a budgeting basis
2. It is defined based on the legal financial year of the company

The authors are more inclined towards the second, since it is advantageous for the entire budget system to
be in accordance with the accounting period, which will allow controlling the corresponding budget
without making special accounting cuts.
The financial budget must be divided monthly ; 1st because each monthly period requires carrying out
controls and making the corresponding adjustments based on the events that occur during the month. Even
the PF for the beginning month must be presented weekly because it shortens the periods of uncertainty
and the person who prepares it automatically defines the priorities based on the degree of compliance with
the budget.

7.3 TYPES OF BUDGET

There are two types: the base financial budget (PFB) and the operating financial budget (PFO).

a) Base financial budget

It is the first version of the projected movement of funds that then serves as the starting point of the
operating financial budget. It is only the estimate with a monthly opening of income and expenses,
putting into the projections all the facts related to the company that have financial implications in the
period being budgeted. These facts are called “information modules for financial projection.”
Based on the results obtained, decisions will be made whether it showed a deficit or surplus; It must
be accepted that finances limit the economic and many times an excellent economic projection must
be discarded or adapted due to financial limitations.

b) Operational financial budget

The PFB, adapted and adjusted according to the different decisions made, gives rise to what we call
“operational financial budget”. If there is a PE adopted by the organization, validated through the
PFB and the corresponding decisions on adjustment and balance, the PFO takes on the character of a
roadmap, which indicates the steps necessary to achieve the objectives. Based on this, it is extremely
important to update financial information, which can have its origin in two basic aspects:
• Modification of economic guidelines
• Financial adjustments

The first modifies the economic projection and as a direct consequence forces the entire PFO to be

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Management control UNIT 7 Financial budget

considered, starting again the decision-making process aimed at achieving its balance or adjustment.
The second possibility has a financial relationship, which leads the organization to make temporary
adjustments (carry over) within the budget period, such as reconsideration of payment terms or
borrowing. These adjustments do not modify the PFO for the period but are captured by two
byproducts of it:
• Monthly financial budget (PFM)
• Weekly financial budget (PFS)

These two assimilate the impacts of real events, reprocessing the financial information so that the PF
maintains its conception as a control tool.

Summarizing,

Guy Budget period Control cuts

Base financial 12 months Monthly
Operational financial 12 months Monthly
Monthly financial Month Weekly
Weekly financial Weekly Diary

Reproducing the sequence, the process begins with the conception of the base economic and financial
budget. Both exchange information, in addition to feeding on both financial and economic
information. The next step is to convert the PFB to the PFO by applying the adjustment and balancing
decisions where appropriate. The financial costs and income that the adjustments produce must be
captured by the economic expert, because they are variables that affect the projected result. This
implies the possibility of readjusting the PFB, which restarts the cycle.

7.4 PRODUCTION SCHEMES

7.4.1. BASE FINANCIAL BUDGET

Its preparation is based on the following information modules

7.4.1.1. Economic budget

From this, a significant part of the projected fund flows for the budgeted period is defined.
Let's analyze each one in particular.

■ Sales
It is imputed as “sales income”. It is necessary to carry out a “theoretical opening” of these
sales to estimate the collection periods considering their usual delay periods that the
company supports. This opening allows determining the net amounts to

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Management control UNIT 7 Financial budget

charge. The use of average terms should be discarded because it lacks validity for making
adequate financial estimates.
When talking about theoretical opening of sales, it is to determine of the total sales, how
much corresponds to cash payment, how much corresponds to 30 days and how much
corresponds to X days.

Example:

APPLICATION EXAMPLE

• Economic budget

Concept January February March April

Gross Sales 2.500.00 2.000.00 4.000.000
Discounts 0 0 160.000
100.000 65.000
Net sales 2.400.00 1.935.00 3.840.000
0 0
• Opening of Sales by Theoretical Conditions

Sale condition
Month Cash 10% 30 days 30 and 60 days Total
discount 5% discount net

January 500.000 1.000.00 1.000.000 2.500.000

February 300.000 0 700.000 1.000.000 2.000.000
March 700.000 1.800.00 1.500.000 4.000.000
0
• Financial budget

Concept Januar Februa March April May

y ry
Sales Income 450.00 500.00
Tracks. January 0 1.450.000 500.000 0
Sales February 270.000 1.165.000 2.460.000
Sales March VAT 630.000 621.60 750.000
Effect 94.50 361.200 481.950 0 157.500
0
544.50 3.581.60
TOTAL 2.081.200 2.776.950 907.500
0 0
For simplification purposes, the effect of the tax on the annual value at the rate of the

■ Other income
It groups accounts with positive results that generate income of funds and that are not
budgeted in the “sales” item, so they are excluded from the operating result. Examples are
royalties, dividends, interest, sale of fixed assets, etc. The latter should be included in the
PF as the income and not the result from the sale; The way to budget the rest will be to
estimate an effective date of income, net of discounts plus the incidence of the tax.

■ Variable business costs

Includes royalties, commissions, social charges on commissions and awards, sales tax, etc.
As variable costs to sales, they should be allocated to the PF in the same way as sales, but
we will see that there are certain concepts that must be reworked. An example will be
those of commissions and their social charges. The social charges included in the PE are
expressed in gross values and that pertaining to social charges considers the contributions
payable by the company plus the incidence of the SAC portion and its derived social
charges that accrue monthly. This cannot be passed directly to the financier, first because
as the company is a withholding agent, the amounts within social charges include
employee contributions that are not disbursements of company funds. Nor will the SAC
and its derived social charges be paid every month, but rather the effective payment is
made twice a year. The same thing happens with own transportation expenses (the PE
shows an amount that contains the corresponding amortizations, which is an item and not

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Management control UNIT 7 Financial budget

an expenditure of funds); and also packaging materials (the purchasing projection must be
taken into account rather than the sales made for the period)

■ Variable production costs

It includes concepts that are directly proportional to production. Like commercial variable
costs, there is a gap between what is earned and what is received in this concept. This is
because it is not important how much raw material, labor and social charges have been
assigned to each unit (based on a determination of costs, whether standard or otherwise),
but what is important are the payments that must be made. carried out within the budget
period, based on the purchasing plan, labor and others.

■ Fixed costs
The amounts stated here respond to the scheme of carrying out the following tasks:
a) classification of the company by functions;
b) accrual of costs to the budgeted period;
c) allocation of accrued costs to the different functions.

When these costs must be transferred to the PF, the following clarifications must be taken
into account:
1) The classification of costs by function is of no financial importance.
2) only the classification by nature is of interest
3) there are non-disbursable items
4) The entire task of accrual to the different periods of anticipated or deferred costs is not
valid for the PF
5) The shame of salaries and social charges must be attributed as seen above.
6) The financial projection is made based on the different natures of costs and payment
conditions, regardless of the accumulation and accrual scheme used.
7) The financial costs of the PE are charged to own capital, a fact that is not considered
in the PF, which only considers the interests actually disbursed.
8) If the company uses comprehensive costing, the fixed production costs of the PE may
have nothing to do with those accrued in the period.

■ Income tax
Its budgeting will be based on the effective disbursement of funds for said concept, either
for the determined balance of the DDJJ or for advances in the budget period, regardless of
the amount assigned to each of the months of the PE.

7.4.1.2. Wages and social security charges

This is another of the information modules on which the financial projection is made. The
reasons why it is treated differently have already been mentioned.
The information must be presented according to the sales and production budget, since both
decide the magnitude of the sales commissions and a part of the remuneration of the operators.
This includes the need to take into account the possible addition of staff; that the information
shows separately the remunerations unrelated to the levels of veins and production from those
that are directly related.

7.4.1.3. Purchases, Services to Hire and Various Needs

This information module is intended to provide financial data that corresponds to the needs of
the different sectors of the company in relation to the global operation and for the
corresponding budgeted period. Some of these needs are related, to a greater or lesser extent, to
the sales budget and the production plan, and others are independent of them. Some examples
are detailed below.

Needs linked to the sales budget: commercial promotion elements, advertising and promotional
activities, packaging materials, etc.
Needs linked to the production plan: raw materials and various materials, driving force,
physical elements used in quality control tasks, removal services and treatment of production
waste.
Global operational needs: are necessary for the operational functioning of the company and its
basic functions of marketing, production and administration.

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Management control UNIT 7 Financial budget

• From productive activity: machinery insurance, oils and lubricants, etc.

• From commercial activity: market research, travel expenses and mobility
• Administrative activity: administrative, accounting and legal advisory services,
refresher courses
• Without direct connection: rental of buildings, public services, etc.

The important thing about all of these is to group the needs according to whether or not they
are linked to the sales or production budget. This will allow better management of items when
you have to work with PF adjustments and updates.

7.4.1.4. Finance
It includes all the movements of funds to be carried out by the company that are related to
financial operations, such as loan cancellations, interest payments, taking new credits, etc.
For better management, the following clarifications should be observed:

- Loan installment payments must be disclosed separating the part corresponding to capital
amortization from the interest.
- Those loan operations negotiated and agreed upon, but whose decision-making depends on
the exclusive decision of the company, must be presented separately.
- The payments to be made of dividends and fees must be classified into those that are final
and approved and those that correspond to estimates, future payments.

The important thing is to consider and clearly present those effective expenditures of the
possible estimates.

7.4.1.5. Taxes
It is about estimating, taking into account the legal provisions regarding deadlines, the
payments that must be made for any type of tax in the budget period. They must be presented in
the budget, classified by tax and grouped according to whether they are certain figures or
estimates; This is due to the need to prepare the projection in such a way that it allows
subsequent elaboration aimed at achieving what was called the PFO.

7.4.1.6. Investments in fixed assets and research and development

Part of the expenditures that correspond to this information module forms one of the variables
of the different investment projects that the company has and that were considered and
approved at the relevant stage. The PF only captures, without linkage and separately, the
income and expenses that are projected from them and will report, in the pertinent budget
control, on the degree of compliance achieved. The PF item that corresponds to this information
module must be presented in such a way that it allows distinguishing the sector, the concept and
the priorities regarding the needs of this type of goods.

In points 7.4.1.1 to 7.4.1.6, the different information modules that provide the necessary data for
the preparation of the PFB have been described.

It is interesting to note that all these modules can be grouped into:

- Modules corresponding to budgeted economic events: the financial projection is carried

out on economic estimates. If these are not met, the PF is invariably affected. Example:
salaries and social charges.

- Modules corresponding to real economic facts: the financial projection is made based on
real economic facts that are not subject to modifications. Example: finance
- Modules corresponding to real and budgeted economic events: the financial projection
is carried out based on economic events where real and estimated situations are combined.
Example: taxes
- Modules corresponding to scheduled economic events: the financial projection is made
based on decisions taken by the company to accrue in the budgeted period. Example:
investments in fixed assets and research and development.

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Management control UNIT 7 Financial budget

7.4.1.7. Opening balances

The projection of the movement of funds that arises from the different modules analyzed may,
due to the different collection and payment conditions, place items outside the budgeted period,
which is why they are of no interest for the purposes of the PF. But we must also consider the
items from the previous period that have a financial impact on the period being budgeted. These
items can be considered as real or budgeted situations. If they are real, there are no problems
because they generate specific facts that are recorded, but if they are budgeted, they are subject
to variations, which could lead to the case that without the period having started, there are
already modifications in the budgeted items.
With this stated, the best scheme to deal with these differences is the following:
a) Consider the annual period as the base time range for budgeting and control.
b) Incorporate into the budgeted period the projections of income and expenses of 1) budgeted
economic events and 2) actual and scheduled economic events for the current period
c) Incorporate into the budgeted period 1) the beginning balances of the different items that
correspond to balances that are carried over from period to period due to their incidence; 2)
real and scheduled economic events of the previous period that have an influence on the
current one; and 3) real and scheduled economic events that should have generated
financial movements in the previous period and were carried over to the current one (due to
lack of collection or payment).
d) Adjust the “Starting balances” at the beginning, taking the corresponding accounting
balances, and only transfer the movements related to real economic events.

The installments of loans or taxes in arrears that occurred in the previous period and due in the
current one could be considered as b) 2 or as starting balances c)2 depending on how the
determining economic fact is considered from the point of planning. financial situation, the
expiration of the installments or the agreement with the AFIP, as appropriate.
These are simple exposure problems, but if we opt for c)2 we would be considering the
maturities as initial balances, while if we choose b)2 we would have to be careful to consider
them by adding them to the initial balances, in order to its validation against the actual
accounting balances.

For me, in this case what the author is basically referring to is that the total of the accounting
balances at the close of the previous budgeted period will not always be the initial ones in the
financial one, but rather they may differ.
Example: if I have royalties payable on 12-31 for $34,600, payable in January $17,000 and
February $17,600, the accounting account will be $34,600 as of 12-31, but I will transfer only
$17,000 to the financier in January and not the entire amount.

All these information modules make up the “base financial budget”. The way of accumulating and
presenting the information must respond to certain characteristics in order to make the correct
decisions to obtain a definitive version of the “operational financial budget.”
These characteristics must be:
1) The financial estimate of the actual accounting balances, which we call “beginning
balances,” must be presented clearly and separately (ref.: I);
2) The estimates that come from the different possible economic facts must be clearly
differentiated; budgeted, actual and scheduled. (ref.: E, R, P);

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 Management control UNIT 7 Financial budget

3) Within the budgeted economic facts, those that are proportionally related to the volume of
production and sales must be distinguished (ref.: EP, EV).

Example of a base financial budget.

VIVI If HUUUIIIV• HIUIIUI Ui iu HIV~HvaIE UUI IIH• \-HuMIN . YO./

Base financial budget - January / March period

Code Concept January February March Total

INCOME
1 Cash ■ Banks 30 000 0 0 30.000
Subtotal Availability 30.000 0 0 30.000
2.081.200 2.776.950
544.500 5.402,650
Sales Income - Of the Period Sales Income - Initial Balance
EV i
778.940 778.940
Subtotal Sales Revenue 1,323.440 2.081.200 2.776.950 6.181,590
AND 18 150
Royalties receivable - From the period 12.100 30 250
1
Gifts to be collected - Initial Balance 32.000 32.000
Subtotal Oíros Income 32.000 12.100 18.150 62.250
472.000 472.000
R
Bco loan. YY
940 000 940.000
RR
Bco loan. XX • optional integration Shareholders
300.000
300.000
Subtotal Loans and Others 472.000 300.000 940.000 1.712.000
TOTAL INCOME 1.857.440 2.393.300 3.735.100 7.985.840

EXPENSES 18.150 18.150

Royalties • Of the Period 17.000
34.600
Royalties • Initial Balance
29 025 65.025
Taxes S/ Venias - Of the Period 32 000 17.600
32.000
EV 1 Taxes Yes Sales ■ Initial Balance 11 344 36.000 27.225
58 988
EV 1 Freight • Period
34.250
EV 1 34 250
Freight - Initial Balance 20.419 6050
EV 1 Mere Insurance. Transported - From the Period 13.612
5.325
Mere Insurance. Carried ■ Initial Balance 5 325
7.562
AND Subtotal Variable Business Expenses 99.919 81.581 80.450 261.950
Fixed Remunerations for Sales Personnel 7.500 7 500 15.000

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Management control UNIT 7 Financial budget

112 500 90.000

Variable Remunerations for Sales Personnel 202.500
127.500 127.500
Fixed Remunerations General Staff 255.000
EV E 3.000 9.000
Additional Remunerations 12.000
EP E 6000 6.000
Compensations 18.000
Yo 6.000
Remunerations • Initial Balance 272.000
272.000
Subtotal Remunerations 278.000 256.500 240.000 774.500

AND Apone Employees - Fixed Remunerations of Venias Staff 2 500 2.500 5.000
EV Employee Contribution - Variable Remunerations Sales Personnel 37.500 30.000 67.500

AND Employee Contribution • Personal Fixed Remunerations 42.500 42 500 85.000

EP Employee Contribution - Additional Remunerations 1.000 3.000 4.000

AND Company Contributions • Fixed Remunerations of Sales Personnel 2.000 2 000 4.000
EV Company Contributions - Variable Remunerations of Sales Personnel 30.000 24.000 54.000

AND Company Contributions - Ajas Personal Remunerations 34.000 34.000 68.000

EP Company Contributions - Additional Remunerations Social Security Charges 800 2.400 3200
Yo • Initial Balance 243 000
243.000
Subtotal Social Burdens 243.000 150.300 140.400 533.700

EP Raw Materials and Various Materials 52.600 526.400 564 156 1.143.156

EV Commercial Promotion Elements 12 000 84.300 76.000 172.300

EV Advertising and Events 25 000 148.000 173 000

EV Fuels and Vehicle Expenses 4 800 3.900 7 500 16.200
5.200 4,800
EP E Driving Force • Gas • Steam 10.000
General securities 21.000 21.000
AND Oils. Lubricants. Spare Parts and Tools 13.730 13.730 13 730 41 190

AND Consulting and Subscription Services 9 680 9.680 19.360

AND Vitics and Mobility 4.800 4 800 4.800 14.400

2.200
AND Stationery, supplies and vanities
4 2.200
2.200 6.600
AND Public services. Fees and Contributions 5 800 5.800

AND Personnel Services 4.500 4 600 9.100

Yo Suppliers and Various Obligations - Initial Balance 596.000 42.000 638 000

Subtotal Purchases - Services and Miscellaneous Needs 732.130 696.710 841.266 2.270.106

R Bank Loans - Capital 50.000 100.000 100.000 250.000

R Bank Loans - Interest 1.850 7.399 5.569 14.818
50.C00 10.000
RI Dividends and Director Fees 50.000 110.000
Bank Acs - Initial Balance 105.668 105.668
Finance Subtotal 207.518 157.399 115.569 480.486
EV LV.A 370.000 295.000 665.000
R DGI Moratorium 320 000 318000 315.000 953 000
R Income Tax Advances 155.000 155 000 155.000 465.000
Yo Taxes • Initial Balance 663 000 325 000 988.000

Tax Subtotal 1.138.000 1.168.000 765.000 3.071.000

50.000 171.000
Q Priority Investments 50.000 271.000
Q Optional Investments 121.000 121.000
Subtotal Investments and Research and Development 50.000 171.000 171.000 392.000

TOTAL EXPENSES 2.748.567 2.681.490 2.353.685 7.783.742

202.098
SURPLUS/DEFICIT -891.127 -288 190 1.381.415
SURPLUS / DEFICIT • ACCUMULATED -891.127 -1.179.317 202.098

Table No. 7.1

The result of the base financial budget has yielded a so-called “cash surplus/deficit” that can be
understood under different alternatives:

• ALTERNATIVE TO:

Accumulated
Final position Partial positions positions
Positive Positive Positive

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Management control UNIT 7 Financial budget

Example:
Period January February March April Final position
Surplus/deficit 100.000 150.000 100.000 150.000 500.000
Accumulated
100.000 250.000 350.000 500.000
surplus/deficit

• ALTERNATIVE B:

Accumulated
Final position Partial positions positions
Positive Positive/Negative Positive

Example:
Period January February March April Final position
Surplus/deficit 150.000 -100.000 100.000 -100.000 50.000
Accumulated
150.000 50.000 150.000 50.000
surplus/deficit
• ALTERNATIVE C:

Accumulated
Final position Partial positions positions
Positive Positive/Negative Positive/Negative

Example:
Period January February March April Final position
Surplus/deficit -100.000 150.000 -100.000 100.000 50.000
Accumulated
-100.000 50.000 -50.000 50.000
surplus/deficit
• ALTERNATIVE D:

Accumulated
Final position Partial positions positions
Negative Negative Negative

Example:
Period January February March April Final position
Surplus/deficit -100.000 -150.000 -100.000 -150.000 -500.000
Accumulated
-100.000 250.000 -350.000 -500.000
surplus/deficit
• ALTERNATIVE E:

Accumulated
Final position Partial positions positions
Negative Positive/Negative Negative

Example:
Period January February March April Final position
Surplus/deficit -100.000 50.000 -100.000 100.000 -50.000
Accumulated
-100.000 -50.000 -150.000 -50.000
surplus/deficit
• ALTERNATIVE F:

Accumulated
Final position Partial positions positions
Negative Positive/Negative Positive/Negative

Example:
Period January February March April Final position

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Management control UNIT 7 Financial budget

Surplus/deficit -100.000 250.000 -100.000 -150.000 -100.000

Accumulated
-100.000 150.000 50.000 -100.000
surplus/deficit

7.4.2. OPERATING FINANCIAL BUDGET

As the author mentions previously, certain adjustments must be made to the PFB due to the choice
of different courses of action.
Let's analyze the different possibilities according to what we saw above:

- Alternative A

It is obvious that if all the guidelines established in the PFB were carried out without any type
of modification or addition, these results constitute cash surpluses that the company must
decide.

- Alternative B

No different from above: the positive final position is what really mattered. This allows the
company to finance itself in months with a cash deficit, since the accumulated position perfectly
covers said deficit. This is the only thing that needs to be prevented: having the necessary funds
available to cover the deficit months.

- Alternative C

The task in this is to find a way to balance the negative accumulated positions as a consequence
of the partial positions of the same characteristic. The company must find a way to offset the
surpluses with the deficit, and there are two possibilities:
a) make internal financial adjustments to advance income or postpone expenses. The
economic impact of this must be taken into account.
b) Achieve financing by taking out quickly repaying loans, such as overdrafting the current
account.

Be careful because changing the form of payments or financing can alter the economic budget
in such a way that it changes the final position of the financial budget. It will depend on the size
of the positive balances and respective adjustments.

- Alternative D

It is a problem to be with a PF with a negative final position. To do this, the following

possibilities must be analyzed:
a) Profitability problem: although we saw that the economic budget does not necessarily
affect the financial budget, it may be that a negative PE at some point ends up affecting the
financial budget. A bad economic situation can be mitigated, but never solved by a
good financial strategy.
b) Mismatch between collection and payment periods: although there is a positive PE,
collections and payments make the PF negative. This will depend on the magnitude of the
results being managed, as well as the period in which the gap is occurring. The company
must find a way to finance itself, either with starting balances from previous periods, as
well as look for a source of financing at the lowest possible cost.
c) High operational indebtedness: the consideration of operating beginning balances
(understood as the linking of the PE of the previous period) can generate a negative
financial effect that reverses the result of the PF of the period in question. This is a
consequence of unfavorable financial closings from previous periods. The solution will be
in the search for traditional financing, seeking to extend payment terms for example.
d) High structural debt: it is one of the most common. Companies that have positive PE and
PF that are diluted with interest payments and capital cancellations of “structural”
liabilities. What you should not do is prioritize the financial over the economic. The
solution will be to balance the funds or look for new structural liabilities.

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Management control UNIT 7 Financial budget

e) Initiation periods: although the possible negative results that are generated in initiation
periods of different types are deferred in time, financially they can generate adverse
positions. Many times the financial forecasts are not sufficient, which is why they generate
deficits that can define the final position of the PFB. The solution is the same as in the
previous one.

■ Alternative E

It does not differ from the previous point. The fact of having fluctuations within the budget
period does not change the situation much, except in relation to the fact that an attempt could be
made, through “internal financial adjustments”, to advance the surplus of funds, postponing the
financing needs, which would imply less cost.

■ Alternative F

Same as the previous alternative with the following: since the accumulated positions are
alternately positive and negative, there are moments of surplus funds with which the
possibilities of postponing financing needs are greater, and the costs lower.

❖ Conclusions
■ The result of the EP influences but does not decide at all the surplus or deficit of the PF.
■ A PFO should never be closed that has not been balanced through concrete and feasible
courses of action.
■ Financial decisions on budget balance must be made taking into account all possible
alternatives and their economic impact.
■ There are no financial balanced budget decisions that do not involve economic costs. If it
exists, it will only be a correction to a poorly prepared financial projection.

7.5 BUDGET UPDATE AND CONTROL

The financial projection must be updated as a result of: adjustments to beginning balances;
modifications to budgeted economic guidelines; adjustments of an exclusively financial nature.

- Adjustment of starting balances

They are those economic events that had their origin in the previous budget period and for
different reasons impacted the financial being budgeted. These are classified into:
a) balances that are carried forward to the current budget period and that correspond to budgeted
economic events from the previous period with financial impact in the present;
b) real and scheduled economic events of the previous period with current financial impact;
c) real and programmed economic events that should generate financial movement in the
previous period are transferred to the present due to different circumstances (lack of
collection/payment)

Example of a) budgeted sale for the month of December (closing of the ex) that financially
impacts the month of January (opening of the ex)
Example of b) the maturity in the current period of the installments of a bank loan taken out in the
previous period
Example of c) overdue and unpaid loan installments from the previous period that are carried over
to the current one.

These balances, as estimates that are when starting to make the budget for the following year, may
undergo adjustments when said period begins. What is sought is that, at that moment, they are true
accounting balances, eliminating any estimate. The magnitude of the adjustment will depend on
the moment in which the projection was estimated (the closer to the beginning, the greater the
certainty and therefore the fewer errors, and the fewer adjustments).

- Modifications to budgeted economic guidelines

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Management control UNIT 7 Financial budget

The different information modules to carry out the projection can be classified as budgeted, actual,
and programmed.
The former can be modified and require reviewing the entire PFO. These modifications can occur
before the beginning of the budget period, or during it, so only the remaining months are
modified. The most important element will be the sales budget, which when modified alters the
PE and PF.

- Exclusively financial adjustments

They consist of adapting the PFO according to the company's operations. Because they are
financial adjustments, the annual PFO should not be modified, but the PFM or PFS (monthly or
semi-annual) should be modified. An example may be the modification of “sales income”, which
will not be modified in the annual, but will be modified monthly or semi-annual due to greater
certainty and information.

As a financial projection and monitoring proposal, it can be made up of the following by-products:
- Annual base financial budget with monthly opening
- Annual operating financial budget with monthly opening
- Monthly financial budget with weekly opening
It is made immediately closed the previous month. It must be carried out independently of
the annual one, but there cannot be many variations with it because this would result in a
failure to update the annual PFO.
- Weekly financial budget with daily opening
Same as the previous one but with daily opening. The differences may be used as an
operational tool to show budget non-compliance.
- Daily financial compliance
We move from the budgeting stage to the control stage.
- Weekly financial compliance, daily cumulative
It is about accumulating the different daily real movements against the weekly financial
budget. The objective is to have a report at the end of the day showing the degree of
financial progress for the week.
- Monthly financial compliance, weekly cumulative
The actual movements, after being compared, are accumulated against the monthly
movement to review the degree of compliance. It meets two objectives: to know at the end
of the week what has been done and what is pending during the month; and at the end of
the period it is formed as a monthly financial budget compliance control report.
- Compliance with annual operating financial budget
It pursues the objective of controlling annual compliance, showing progress month by
month, with their respective accumulated results. At the end of the period, the differences
considered in this control will be the actual budget variations of the annual projection.

7.6 RESPONSIBILITY IN THE PREPARATION, MONITORING AND CONTROL OF

THE FINANCIAL BUDGET

The responsibility falls on the entire organization, not just the finance area. There is no one person
who can be in charge of compiling all the information. There may be a sector in charge of everything
related to budgets, called “Financial Planning”, but it must have comprehensive knowledge of the
organization, since it will also be responsible for redefining priorities when financial problems arise
due to budget non-compliance.

From this, the Planning and Control area should exist.

In some companies it may be within the Finance area, but it will always be necessary for it to meet the
requirement of in-depth and comprehensive knowledge of business operations.

Returning to the finance area, although financial planning is not in charge, you will still have to
assume the following roles when participating in financial budgeting:
a) responsible for the “finance” information module;
b) actively participates in financial balance decisions
budgetary;

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Management control UNIT 7 Financial budget

c) uses by-products as financial operation tools;

monthly, weekly, daily budget and its corresponding compliances.

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