Which budgeting step is prepare supporting schedules

It should be divided into the shortest time period possible, so management can be quickly made aware of potential problems resulting from fluctuations in cash flow. One goal of this budget is to anticipate the timing of cash inflows and outflows, which allows a company to try to avoid a decrease in the cash balance due to paying out more cash than it receives.

In order to provide timely feedback and alert management to short-term cash needs, the cash flow budget is commonly geared toward monthly or quarterly figures. Figure shows how the other budgets tie into the cash budget. Cash is so important to the operations of a company that, often, companies will arrange to have an emergency cash source, such as a line of credit , to avoid defaulting on current payables due and also to protect against other unanticipated expenses, such as major repair costs on equipment.

This line of credit would be similar in function to the overdraft protection offered on many checking accounts. Because the cash budget accounts for every inflow and outflow of cash, it is broken down into smaller components. The cash collections schedule includes all of the cash inflow expected to be received from customer sales, whether those customers pay at the same rate or even if they pay at all. The cash collections schedule includes all the cash expected to be received and does not include the amount of the receivables estimated as uncollectible.

The cash payments schedule plans the outflow or payments of all accounts payable, showing when cash will be used to pay for direct material purchases. Both the cash collections schedule and the cash payments schedule are included along with other cash transactions in a cash budget.

The cash budget, then, combines the cash collection schedule, the cash payment schedule, and all other budgets that plan for the inflow or outflow of cash. When everything is combined into one budget, that budget shows if financing arrangements are needed to maintain balances or if excess cash is available to pay for additional liabilities or assets. The operating budgets all begin with the sales budget.

The cash collections schedule does as well. Since purchases are made at varying times during the period and cash is received from customers at varying rates, data are needed to estimate how much will be collected in the month of sale, the month after the sale, two months after the sale, and so forth. Bad debts also need to be estimated, since that is cash that will not be collected. They believe cash collections for the trainer sales will be similar to the collections from their bicycle sales, so they will use that pattern to budget cash collections for the trainers.

An estimate of the net realizable balance of Accounts Receivable can be reconciled by using information from the cash collections schedule:. Using information from Big Bad Bikes sales budget, the cash collections from the sales are shown in Figure. When the cash collections schedule is made for sales, management must account for other potential cash collections such as cash received from the sale of equipment or the issuance of stock. These are listed individually in the cash inflows portion of the cash budget.

The cash payments schedule, on the other hand, shows when cash will be used to pay for Accounts Payable. One such example are direct material purchases, which originates from the direct materials budget.

When the production budget is determined from the sales, management prepares the direct materials budget to determine when and how much material needs to be ordered. Orders for materials take place throughout the quarter, and payments for the purchases are made at different intervals from the orders. The information from the cash payments schedule feeds into the cash budget. Big Bad Bikes typically pays half of its purchases in the quarter of purchase.

The remaining half is paid in the following quarter, so payments in the first quarter include payments for purchases made during the first quarter as well as half of the purchases for the preceding quarter. Additionally, the balance of purchases in Accounts Payable can be reconciled by using information from the cash payment schedule as follows:. The first quarter of the year plans cash payments from the prior quarter as well as the current quarter.

While the cash payments schedule is made for purchases of material on account, there are other outflows of cash for the company, and management must estimate all other cash payments for the year. Typically, this includes the manufacturing overhead budget, the sales and administrative budget, the capital asset budget, and any other potential payments of cash.

Since depreciation is an expense not requiring cash, the cash budget includes the amount from the budgets less depreciation. Cash payments are listed on the cash budget following cash receipts. Figure shows the major components of the cash budget. The cash budget totals the cash receipts and adds it to the beginning cash balance to determine the available cash. From the available cash, the cash payments are subtracted to compute the net cash excess or deficiency of cash for the quarter.

This amount is the potential ending cash balance. Organizations typically require a minimum cash balance. If the potential ending cash balance does not meet the minimum amount, management must plan to acquire financing to reach that amount. If the potential ending cash balance exceeds the minimum cash balance, the excess amount may be used to pay any financing loans and interest. Budgeted Balance Sheet The cash budget shows how cash changes from the beginning of the year to the end of the year, and the ending cash balance is the amount shown on the budgeted balance sheet.

The budgeted balance sheet is the estimated assets, liabilities, and equities that the company would have at the end of the year if their performance were to meet its expectations. These problems can be avoided somewhat through the careful design of site-based budgeting guidelines and through training for new budget stakeholders.

Outcome-Focused Budgeting Consistent with the evaluation objective, government budgeting is becoming increasingly outcome-focused. Fiscal austerity, coupled with intense competition for governmental resources, has precipitated an effort to ensure more effective use of resources at all levels of government.

Outcome-focused budgeting is the practice of linking the allocation of resources to the production of outcomes. The objective is to allocate government's resources to those service providers or programs that use them most effectively. Outcome-focused budgeting is closely linked to the planning process in governments.

For a government entity to focus on outcomes, goals and objectives must be identified and tied to budget allocations for the achievement of those objectives. This premise argues that mission-driven synonymous with outcome-focused governments are superior to those that are rule-driven because they are more efficient, are more effective in producing desired results, are more innovative, are more flexible, and have higher employee morale Osborne and Gaebler In the context of increased governmental scrutiny of governmental costs, including schools, this model may receive more emphasis in the future.

The development of annual budgets is part of a continuing planning process. The advent of site-based decisionmaking in some states has increased the integration of planning and budgeting at the school level; however, state laws generally allow considerable district autonomy in budget preparation. The organizational structure of a district, including the size and complexity of its administration and the degree of centralization, will affect the budgetary approach, the budget development process, and the final budget document.

Beyond the requirements for federal and state programs, the budget preparation process and related responsibilities will largely be determined by the local school board and superintendent. The following chapter contains information related to the significant aspects, phases, and outputs of the school district budgeting process. Although it is not meant to establish standards or requirements for districts, the chapter may be useful in the development of sound budgeting procedures.

Given the diversity of budgetary and financial reporting found in the individual states, the process described here may be customized to conform to particular local and state requirements.

Additionally, the following discussion is typical of districts that use a site-based budgeting approach. Roles and Responsibilities The local school board and the superintendent should establish a meticulous budget preparation process and guidelines.

Thus, the delegation of budget responsibilities among administrators districtwide and schools site-based should be deliberately designed to require consensus at the highest levels of management.

Because individuals may serve in a variety of roles in the budget development process, the division of duties may differ among districts. It is important, however, to clearly define the staff assignments and parameters if the budget development process is to operate efficiently. With the advent of site-based decisionmaking, individuals lacking previous budget experience need clear direction in order to provide effective input.

Preparation of Budget Guidelines Budget preparation guidelines typically are prepared by the assistant superintendent for business and finance or by an employee with similar responsibilities, such as a chief business official or a budget administrator, with direction from the school board, the superintendent, and other district and school administrators.

A presentation with subsequent board approval of the budget process, guidelines, and calendar may be legally required or may be a locally imposed procedure. In addition to these elements, the preparation guidelines may also contain the following: Guidelines for estimating standard school resource allocations, which are determined by the budgetary approach used by the district and the availability of resources Guidelines for estimating the costs of specific expenditure categories, such as salaries and benefits, supplies, or fixed charges Instructions for submitting school budgets to the district office, including the number of copies, due dates, and personnel to contact for assistance Preparation of the Budget Calendar The budget calendar provides critical dates for the preparation, submission and review of school budgets.

It is prepared during the planning process by the district budget office. A variety of simple techniques may be used to build the calendar, beginning with the previous year's calendar and modifying it for the current year. Problems that occurred in the prior year's budget cycle should be identified for changes to the current year's calendar.

Additionally, changes in the budget development process should be incorporated into the current year's calendar. If the process has been substantially altered, creating an entirely new calendar may be necessary. The following steps may be used to prepare a new budget calendar: Determine the necessary level of detail. If several calendars are used with varying levels of detail, they should be summarized in a master calendar to ensure that all activities and dates are consistent and compatible.

Identify all activities that must be included in the calendar and arrange them chronologically. Assign completion dates to each activity. Although some districts may assign only completion dates, others may also assign suggested or mandatory start dates for certain activities to ensure their timely completion.

Financial forecasting is the practice of projecting the quantitative impact of trends and changes in an operating environment on future operations. Therefore, it is an integral part of all ongoing planning efforts.

Thus, budgetary priorities may be evaluated on the basis of their long-term impacts. Forecasting clarifies trends, needs, and issues that must be addressed and evaluated in the preparation of budgets. For example, enrollment forecasting may reveal growing student populations and focus attention on the need for increased resource allocations for staff, facilities, or both.

Forecasting enhances decisionmaking at all levels of administration. Forecasts provide valuable insight into future issues, which allows administrators to be proactive. It creates the framework for anticipatory management. Although financial forecasting should be a continuing process, it is most important as a component of budget development. Forecasts of projected enrollments, property tax base and revenues, costs associated with salary adjustments, and so on, are important elements in setting baseline budgetary guidelines and creating the basis for the assumptions used to prepare budgets.

Additionally, forecasting provides fiscal impact analysis that may be integrated into the budget development process. Thus, current budgetary decisions may be evaluated for their long-term results. When used before forecasts are prepared, several action steps may increase the reliability of the forecasts: Clarify the intended purpose of the forecast.

The prospective audience may require a certain set of data and related assumptions. Match the time frame with the purpose of the forecast.

Time frames for forecasts will vary according to the purpose i. Ensure the accuracy of basic data. Original source data should be used rather than extrapolated or summarized versions. Sources should be documented and verified if questions concerning data validity arise. Specify the underlying assumptions. Assumptions should be explicit in the forecasts with proper documentation based on actual data.

Be consistent in calculations. Spreadsheet programs are recommended for preparing forecasts to ensure the accuracy and consistency of calculations. Examine data critically. A scan of the data may reveal anomalies or errors that may adversely affect forecasts. Further, a comparison of initial values and forecasted values should be completed to ensure the reasonableness of forecasted values. Recognize that forecasting requires insight and intuition.

Some variables or forecasting assumptions will always be a best guess. However, experience provides a basis for this type of estimation Miller and McClure. A variety of financial and related forecasts are necessary to the preparation of a comprehensive budget. These include, but are not limited to, student enrollment projections, revenue and expenditure projections, cash flow projections, assessed property value projections, and debt service cost projections.

Cash Forecasts. Cash forecasting is also necessary for activities or programs that extend to multiple operating periods, such as major facilities construction and acquisition. Capital projects are typically financed from proceeds of bonds, loans, certificates of participation, or other long-term debt instruments.

Cash projections for the period of activity should incorporate funding proceeds and related capital expenditures based on contractual arrangements with regard for the timing of cash flows.

Fund Balance Forecasts Fund balance forecasting for governmental funds results from the budget development process. Periodic monitoring of balances is provided through budgetary integration with the accounting system and is necessary to ensure compliance with statutory and contractual fund balance requirements. The following steps are basic to the planning process for both annual and multiyear construction and grant programs.

Review the stated goals and objectives to determine that they are the basis for the entity's activities and operations. Although normally developed during the strategic planning process, the goals and objectives should be periodically reviewed for appropriateness.

Conduct formal or informal needs assessments or both. Most strategic plans include one or more needs assessments. The criteria used are normally developed locally; however, some granting agencies may require the use of certain criteria. A methodology that provides objective measurement of the needs of the unit under review is necessary and should include financial and other forecasts in order to properly identify those needs. Remember, the number of pairs of shoes we sell each quarter, does not necessarily match the number of pairs we need to produce each quarter.

Each pair of shoes we make requires 5 units of raw materials. Yeah to our buyer for doing great work on an annual contract! This will certainly help us in our budgeting process right? This information will help our buyers to purchase raw materials, especially if it has a long lead time to receive, or if we like to receive it close to needing it this might be called JIT or just-in-time inventory!

What information is helpful? We now know how much money we need to have each quarter to cover the cost of our raw materials. Our buyer is happy and so is our production manager, knowing that we will have raw material in stock for production! We can use this information to start working on the next part of our budget!

What comes next? Well labor of course! Ok, so Hupana Running Company is getting all set for the new year. We have our sales budget, and know how many pairs of shoes we plan to sell.

From that information we created our production budget, so we know how many pairs we need to produce each quarter, and how many we want in finished goods inventory at the end of each quarter. We also then figured out how much raw materials we need to bring in each quarter to keep our production facilities humming along. So now we need to determine our direct labor needs. Direct labor includes all of the employees who are required to actually manufacture the shoes.

These are the people working on the production floor. Another use for this budget is to schedule plant shutdowns for cleaning and maintenance.

So what new information might we need to complete this budget? Well the biggest one is how much time does it take to complete a pair of shoes? Then we need to know our cost per hour for our direct labor. This cost per hour includes wages, payroll taxes and fringe benefits for each of our production employees.

So we used the required production in pairs from our previous budgets. We noted above the time needed and the cost per hour for our manufacturing employees. With that information in hand, we can calculate our direct labor costs. We now know, how much we will spend each quarter on labor, and can staff properly! We know our sales, production schedule, raw materials cost, direct labor cost and what we will have in finished goods and raw materials inventory at the end of the year! Are we having fun yet?

Well, we are working through these budgets, but now we got to an interesting one. There is more that goes in to the production of our shoes that just the raw materials and the people working. We have equipment, and small supplies, as well as repairs and utilities. These things can get costly, so we need to make sure we are on top of them as we work through this budget!

Manufacturing overhead includes all the costs of production other than labor and raw materials. This can include some variable and some fixed components. Variable manufacturing overhead is based on direct labor hours.

This can include things like electricity, production supplies perhaps needles for the machines that sew together the shoe components and other miscellaneous items needed to produce the shoes. Fixed manufacturing overhead includes depreciation on the equipment, rent or mortgage on the facility and costs to process purchase orders, customer calls and such.

If this occurs, the fixed costs may change. Remember depreciation is not a cash outlay, so we can deduct it from our total manufacturing overhead for cash purposes!! We will talk more about that when we get to our cash budget in a bit. So plugging the information above into our manufacturing overhead budget, we can come up with a predetermined overhead rate for the year.

We also have figured out the cash outlay, as well as the total manufacturing overhead. So if you look at our previous budget for direct labor, the hours shown here on our manufacturing overhead budget come directly from that budget! The variable manufacturing overhead total is simply the hours multiplied by the rate. We now have the information needed to continue moving forward in our budgeting process!

We also calculated our predetermined overhead rate for the year. Because we are using our direct labor hours as our allocation base, dividing the entire manufacturing overhead by the direct hours, gives us a dollar amount we can use, as an addition to the direct labor cost, for each hour worked. This is a helpful calculation to spread out those costs that we cannot directly tie to a given product. This comes in very handy when more than one product line is manufactured. So if Hupana Running Company had 12 lines of shoes with varying labor and material costs, we could use this standard amount per hour of labor to allocate all of the manufacturing overhead costs!

Okay, so now we can move on!! We have all kinds of information now to complete our budgeting tasks! As the senior accountant at Hupana, it is your job to oversee the preparation of the master budget. You have been waiting on the manufacturing overhead budget, so you can complete the finished goods inventory budget. Having the balance for finished goods inventory is needed before you can move on to the budgeted financial statements that are part of your job!

Luckily, you now have all of the information needed to move forward.