LESSON 2

THE LINK BETWEEN PLANNING

AND CONTROLLING
• THE RELATIONSHIP BETWEEN PLANNING AND CONTROLLING COULD BE EASILY
ESTABLISHED. CONTROL IS INTEGRATED PLANNING. PLANNING INVOLVES A THROUGH
PROCESS WHICH IS ESSENTIAL TO THE CREATION AND REFINEMENT OF A BLUE PRINT
OR ITS INTEGRATION WITH OTHER PLANS THAT MAY COMBINE FORECASTING OF
DEVELOPMENTS IN PREPARATION FOR FUTURE SCENARIOS.
 PLANNING AND CONTROLLING IN DIFFERENT LEVEL

• TOP-LEVEL MANAGEMENT(LONG TIME FRAME) – ORGANIZATION-WIDE

PERSPECTIVE

• MIDDLE-LEVEL MANAGEMENT(PERIODIC TIME FRAME) – DEPARTMENT PERSPECTIVE

• LOWER-LEVEL MANAGEMENT(SHORT TIME FRAME) – UNIT/INDIVIDUAL

PERSPECTIVE
• PRO FORMA FINANCIAL STATEMENT - IS ONE BASED ON CERTAIN ASSUMPTIONS
AND PROJECTIONS (AS OPPOSED TO THE TYPICAL FINANCIAL STATEMENT BASED ON
ACTUAL PAST TRANSACTIONS).
EXAMPLE
- A CORPORATION MAY WANT TO SEE THE EFFECTS OF THREE POSSIBLE
FINANCING OPTIONS. THEREFORE, IT PREPARES A PROJECTED BALANCE SHEET, INCOME
STATEMENT, AND STATEMENT OF CASH FLOWS FOR EACH OF THREE FINANCING
OPTIONS. THESE PROJECTED FINANCIAL STATEMENTS ARE REFERRED TO AS PRO FORMA
FINANCIAL STATEMENTS.
• THE BALANCE SHEET
- BALANCE SHEET IS A FINANCIAL STATEMENT WHICH IS DEFINED BY MOST
ACCOUNTING BOOKS AS THE “SNAPSHOT” OF ANY ENTITY’S FINANCIAL
CONDITION BECAUSE IT PRESENTS THE FINANCIAL BALANCES OF A PARTICULAR
PERIOD.

THE BALANCE SHEET IS BASED ON THE FUNDAMENTAL EQUATION:

ASSETS = LIABILITIES + EQUITY
EXAMPLE : ONE WHO HAS A P500,000 CAPITALIZATION MAY HAVE A PRO FORMA ENTRY OF:

ASSETS LIABILITIES AND EQUITIES

CASH ON HAND XXXXX ACCOUNTS PAYABLE XXXXX
MARKETABLE SECURITIES XXXXX ACCRUALS XXXXX
PREPAID EXPENSES XXXXX TOTAL CURRENT LIABILITIES XXXXXX
ACCOUNTS RECEIVABLE XXXXX
TOTAL CURRENT ASSETS XXXXX LONG-TERM DEBTS XXXXX
MORTGAGES XXXXX
PROPERTY AND EQUIPMENT XXXXX TOTAL LONG-TERM LIABILITIES XXXXX
LAND XXXXX TOTAL LIABILITIES XXXXX
TOTAL FIXED ASSETS XXXXX
FOR THIS SETUP, WITH THE ASSUMPTION THAT THE CAPITAL IS ALL IN CASH, THE LATTER AMOUNT
MAY DIMINISH DEPENDING ON WHAT WAS SPENT FOR. ASSUMING YOU WOULD PURCHASE
EQUIPMENT TO BE IN THE BUSINESS AMOUNTING TO P100,000, YOU WOULD NOW HAVE:

ASSETS LIABILITIES AND CAPITAL

CASH………………………………P400,000 OWNER’S CAPITAL………………..P500,000

EQUIPMENT………………………..P100,000

TOTAL ASSETS……………………..P500,000 TOTAL LIABILITIES AND CAPITAL…..P500,000

 INCOME STATEMENT

• IS ALSO KNOWN AS THE PROFIT AND LOSS STATEMENT, REVENUE

AND EXPENSES STATEMENT, STATEMENT OF FINANCIAL
PERFORMANCE, OR EARNINGS STATEMENT. IT DISPLAYS THE COST
AND EXPENSES CHARGED TO RECOGNIZE REVENUES IN A SPECIFIC
PERIOD. BASICALLY, IT SHOWS WHETHER THE COMPANY MADE
MONEY OR LOST MONEY.
IF THE FINAL PRODUCT WOULD COST P50 EACH FOR SALE IN THE MARKET AND THE PROJECTED NUMBER OF
UNITS TO BE SOLD WOULD BE 1,000, IT WOULD FOLLOW THAT THE GROSS SALE WOULD BE P50,000 FOR A
PARTICULAR PERIOD DERIVED AS P50 X 1,000 UNITS.
IF IN IT’S OPERATION, THERE WOULD BE ANTICIPATION OF EXPENSES SUCH AS OPERATING EXPENSES (OPEX)
OFP25,000 OR ADMINISTRATIVE COSTS OF P20,000, THE GROSS INCOME WOULD BE P5,000.

EXAMPLE OF INCOME STATEMENT

GROSS SALES P50,000
LESS: OPERATING EXPENSES P25,000
ADMINISTRATIVE COSTS P20,000 P45,000
GROSS INCOME P5,000
 CASH FLOW STATEMENT

• THE STATEMENT OF CASH FLOW SUMMARIZES THE INFLOW AND OUTFLOW OF CASH
DURING A GIVEN PERIOD.
2 TYPES OF CASH FLOW STATEMENT
• INFLOW – ACTIVITIES ARE THOSE THAT RESULT IN PROVIDING THE FIRM WITH SOURCES OF
FUNDS.
• OUTFLOW – RESULT IN CASH LEAVING THE FIRM DUE TO DISBURSEMENTS OR EXPENSES THAT
UTILIZE CASH.
FINANCIAL STATEMENT MUST CONTAIN THE FOLLOWING MINIMUM ITEMS :

• SALES OR GROSS REVENUES – IS THE TOTAL AMOUNT OF SALES RECOGNIZED FOR A REPORTING
PERIOD, PRIOR TO ANY DEDUCTIONS.
• NET INCOME – IS A MEASURE OF THE PROFITABILITY OF A VENTURE.
• GROSS PROFIT – IS THE PROFIT A COMPANY MAKES AFTER DEDUCTING THE COSTS ASSOCIATED
WITH MAKING AND SELLING ITS PRODUCT, OR THE COSTS ASSOCIATED WITH PROVIDING ITS
SERVICES.
• INCOME FROM CONTINUING/DISCONTINUOUS OPERATIONS
• USUAL INCOME STATEMENT ITEMS
• TAX PROVISION
• MATERIAL CHANGES IN FINANCIAL POSITIONS
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES
AND ASSUMPTIONS

• THE MANAGEMENT’S INTENT OF PREPARING THE PROSPECTIVE

FINANCIAL STATEMENTS SHOULD BE STATED AND IT MUST BE
MENTIONED THAT PROSPECTIVE RESULTS MAY NOT MATERIALIZE. IT
SHOULD BE CLEARLY STATED THAT THE ASSUMPTIONS USED BY
MANAGEMENT ARE BASED ON INFORMATION AND
CIRCUMSTANCES THAT EXISTED AT THE TIME THE FINANCIAL
STATEMENTS WERE PREPARED.
 ORGANIZATIONAL PERFORMANCE CONTROL

• ALL MANAGERS MUST KNOW WHICH MEASURES WILL GIVE THEM DATA
AND INFORMATION ABOUT OVERALL ORGANIZATIONAL PERFORMANCE
CONTROL. THE USUAL MEASURES ARE ORGANIZATIONAL
PRODUCTIVITY, ORGANIZATIONAL EFFECTIVENESS, AND RANKINGS IN
INDUSTRY.
 TYPES OF ORGANIZATIONAL PERFORMANCE
CONTROL

• ORGANIZATIONAL PRODUCTIVITY – IS THE AMOUNT OF GOODS OR SERVICES

PRODUCED (OUTPUT) DIVIDED BY THE INPUTS NEEDED TO PRODUCE THE SAID
OUTPUT.
• ORGANIZATIONAL EFFECTIVENESS – IS A MEASURE OF THE ORGANIZATIONAL
GOALS’ SUITABILITY TO ORGANIZATIONAL NEEDS AND HOW WELL THESE SAID
GOALS ARE BEING ATTAINED.
• RANKINGS IN INDUSTRY – IS A WAY OF COMMONLY USED BY MANAGERS TO
MEASURE ORGANIZATIONAL PERFORMANCE.
 OTHER PERFORMANCE CONTROLS IN ORGANIZATIONS

• COMPUTER-BASED CONTROL SYSTEMS – ARE COMMON IN MANY COMPANIES TODAY.

MANAGERS HAVE EASY ACCESS TO THEIR FIRMS’ DATABASES WHICH COULD PROVIDE
MEANINGFUL INFORMATION FOR PERFORMANCE EVALUATION.
• BUREAUCRATIC CONTROL – MAKES USE OF STRICT RULES, REGULATIONS, POLICIES,
PROCEDURES, AND ORDERS FROM FORMAL AUTHORITY NEGATIVE PERFORMANCE
EVALUATION IS GIVEN TO HUMAN RESOURCES WHO DO NOT COMPLY WITH THE SAID
CONTROL MEASURES.
• CLAN CONTROL – IS BASED ON COMPLIANCE WITH NORMS, VALUES, EXPECTED BEHAVIOR
RELATED TO THE FIRM’S ORGANIZATIONAL CULTURE, AND OTHER CULTURAL VARIABLES OF
THE COUNTRY WHERE THE COMPANY IS LOCATED.
 DEFINITION OF TERMS

• DOUBLE ENTRY ACCOUNTING – ACCOUNTING STRATEGY OF SOME FIRMS

WHICH REQUIRES THE PREPARATION OF TWO DIFFERENT ACCOUNTING
REPORTS, ONE FOR INTERNAL USE AND ANOTHER FOR EXTENAL USE.
• DUAL ENTRY – THE PROCESS OF JOURNALIZING WITH DEBIT AND CREDIT
ENTRIES.
• LIQUIDITY – THE ORGANIZATION’S ABILITY TO MEET SHORT-TERM
OBLIGATIONS.