23-1
Chapter
23
McGraw-Hill/Irwin
Master Budgets
and Planning
© The McGraw-Hill Companies, Inc., 2005
23-2
Learning objectives
1. Budget Process
2. Budget Administration
3. Master Budget
4. Decision Analysis:
•
McGraw-Hill/Irwin
Activity-Based Budget
© The McGraw-Hill Companies, Inc., 2005
23-3
1. Budget Process
Defines goals
and objectives
Communicates plans
and instructions
Promotes analysis and
a focus on the future
Advantages
Coordinates
business activities
McGraw-Hill/Irwin
Motivates employees
Provides a basis for
evaluating performance against
past or expected results© The McGraw-Hill Companies, Inc., 2005
23-4
2. Budget Administration
- Budget Committee
Consists of managers from all departments
of the organization.
Provides central guidance to insure that
individual budgets submitted from all
departments are realistic and coordinated.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-5
Budget Committee
Top Management
Middle
Management
Supervisor
Supervisor
Middle
Management
Supervisor
Supervisor
Flow of Budget Data is a bottom-up process.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-6
Budget Timing
Operating Budget
1999
2000
2001
2002
The annual operating budget
may be divided into quarterly
or monthly budgets.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-7
Budget Timing
Continuous or
Rolling Budget
1999
2000
2001
2002
The budget may be a twelve-month
budget that rolls forward one month
as the current month is completed.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-8
3. Master Budget
- Master Budget Components
Sales
budget
Merchandise
Purchases
Prepare
financial
budgets:
 cash
 income
 balance sheet
Prepare
capital
expenditure
budget
McGraw-Hill/Irwin
Prepare
selling and
general
administrative
budgets
© The McGraw-Hill Companies, Inc., 2005
23-9
3. Master Budget
- Sales Budget
Sales
Budget
Estimated
Unit Sales
Estimated
Unit Price
Analysis of economic and market conditions
+
Forecasts of customer needs from marketing personnel
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-10
Sales Budget
In September 2005, Hockey Den sold
700 hockey sticks at $100 each.
Hockey Den prepared the following
sales budget for the next four months:
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-11
Sales Budget
Exh.
23-6
HOCKEY DEN
Monthly Sales Budget
October 2005 – January 2006
September 2005 (actual)
October 2005
November 2005
December 2005
Total
January 2006
McGraw-Hill/Irwin
Budgeted
Unit Sales
700
Budgeted
Budgeted
Unit Price Total Sales
$
100 $
70,000
1,000
800
1,400
3,200
$
$
$
100
100
100
100
$
100,000
80,000
140,000
320,000
900
$
100
$
90,000
© The McGraw-Hill Companies, Inc., 2005
23-12
3. Master Budget
- Merchandise Purchases Budget
The quantity purchased is affected by:
Just-in-time inventory systems that
enable purchases of smaller, frequently
delivered quantities.
Safety stock inventory systems that
provide protection against lost sales
caused by delays in supplier shipments.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-13
Merchandise Purchases Budget
Inventory
to be
purchased
=
Budgeted
ending
inventory
+
Budgeted
cost of sales
for the period
–
Exh.
23-7
Budgeted
beginning
inventory
Hockey Den buys hockey sticks for $60.00 each and
maintains an ending inventory equal to 90 percent of the
next month’s budgeted sales. 900 hockey sticks are on
hand on September 30.
Let’s prepare the purchases budget for Hockey Den.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-14
Merchandise Purchases Budget
Exh.
23-8
HOCKEY DEN
Merchandise Purchases Budget
October 2005 – December 2005
Next month's unit sales
Ending inventory percentage
Budgeted ending inventory units
Add current month's unit sales
Total units needed
Deduct beginning inventory units
Number of units to be purchased
Budgeted cost per unit
Budgeted cost of purchases
McGraw-Hill/Irwin
October
800
× 90%
720
November
1,400
× 90%
1,260
December
900
× 90%
810
© The McGraw-Hill Companies, Inc., 2005
23-15
Merchandise Purchases Budget
Exh.
23-8
HOCKEY DEN
Merchandise Purchases Budget
October 2005 – December 2005
Next month's unit sales
Ending inventory percentage
Budgeted ending inventory units
Add current month's unit sales
Total units needed
Deduct beginning inventory units
Number of units to be purchased
Budgeted cost per unit
Budgeted cost of purchases
McGraw-Hill/Irwin
October
800
× 90%
720
1,000
1,720
November
1,400
× 90%
1,260
800
2,060
December
900
× 90%
810
1,400
2,210
© The McGraw-Hill Companies, Inc., 2005
23-16
Merchandise Purchases Budget
Exh.
23-8
HOCKEY DEN
Merchandise Purchases Budget
October 2005 – December 2005
Next month's unit sales
Ending inventory percentage
Budgeted ending inventory units
Add current month's unit sales
Total units needed
Deduct beginning inventory units
Number of units to be purchased
Budgeted cost per unit
Budgeted cost of purchases
October
800
× 90%
720
1,000
1,720
900
820
× $ 60
$ 49,200
November
1,400
× 90%
1,260
800
2,060
December
900
× 90%
810
1,400
2,210
Beginning inventory is last month's ending inventory.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-17
Merchandise Purchases Budget
Exh.
23-8
HOCKEY DEN
Merchandise Purchases Budget
October 2005 – December 2005
Next month's unit sales
Ending inventory percentage
Budgeted ending inventory units
Add current month's unit sales
Total units needed
Deduct beginning inventory units
Number of units to be purchased
Budgeted cost per unit
Budgeted cost of purchases
October
800
× 90%
720
1,000
1,720
900
820
× $ 60
$ 49,200
November
1,400
× 90%
1,260
800
2,060
720
1,340
× $ 60
$ 80,400
December
900
× 90%
810
1,400
2,210
1,260
950
× $ 60
$ 57,000
Beginning inventory is last month's ending inventory.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-18
3. Master Budget
- Selling Expense Budget

Hockey Den pays sales
commissions equal to
10 percent of total sales.

Hockey Den pays a
monthly salary of $2,000
to its sales manager.
Let’s prepare the sales budget for Hockey Den.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-19
Selling Expense Budget
Exh.
23-9
HOCKEY DEN
Selling Expense Budget
October 2005 – December 2005
Budgeted sales
Sales commission %
Sales commission
Sales manager salary
Total selling expenses
October
$ 100,000
×
10%
$ 10,000
2,000
$ 12,000
November
$ 80,000
×
10%
$
8,000
2,000
$ 10,000
December
$ 140,000
×
10%
$ 14,000
2,000
$ 16,000
$
×
$
$
Total
320,000
10%
32,000
6,000
38,000
From Hockey Den’s sales budget
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-20
3. Master Budget
- General and Administrative Expense Budget

General and
administrative salaries
are $4,500 per month.

Depreciation of
equipment is $1,500 per
month.
Let’s prepare the general and administrative
expense budget for Hockey Den.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-21
Exh.
23-10
General and Administrative Expense Budget
HOCKEY DEN
General and Administrative Expense budget
October 2005 – December 2005
October
Administrative salaries $
4,500
Equipment depreciation
1,500
Total
$
6,000
McGraw-Hill/Irwin
November
$
4,500
1,500
$
6,000
December
$
4,500
1,500
$
6,000
Total
$ 13,500
4,500
$ 18,000
© The McGraw-Hill Companies, Inc., 2005
23-22
3. Master Budget
- Financial Budgets
Cash
Budget
Expected
Receipts
and
Disbursements
McGraw-Hill/Irwin
Budgeted
Income
Statement
Budgeted
Balance
Sheet
© The McGraw-Hill Companies, Inc., 2005
23-23
Budgeted Cash Receipts

Forty percent of Hockey
Den’s sales are for cash.

The remaining sixty
percent are credit sales
that are collected in full
in the month following
sale.
Let’s prepare the cash receipts budget for Hockey Den.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-24
Budgeted Cash Receipts
Exh.
23-12
60 percent of September sales are collected in October
HOCKEY DEN
Cash Receipts Budget
October 2005 – December 2005
Budgeted sales
Accounts receivable
Cash receipts from:
Cash sales
Collection of receivables
Total cash receipts
September
$ 70,000
October
$ 100,000
November
$ 80,000
December
$ 140,000
From Hockey Den’s sales budget
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-25
Budgeted Cash Receipts
Exh.
23-12
HOCKEY DEN
Cash Receipts Budget
October 2005 – December 2005
Budgeted sales
Accounts receivable
Cash receipts from:
Cash sales
Collection of receivables
Total cash receipts
September
$ 70,000
$ 42,000
$
60% of sales
McGraw-Hill/Irwin
October
$ 100,000
$ 60,000
40,000
November
$ 80,000
$ 48,000
$
32,000
December
$ 140,000
$ 84,000
$
56,000
40% of sales
© The McGraw-Hill Companies, Inc., 2005
23-26
Budgeted Cash Receipts
Exh.
23-12
HOCKEY DEN
Cash Receipts Budget
October 2005 – December 2005
Budgeted sales
Accounts receivable
Cash receipts from:
Cash sales
Collection of receivables
Total cash receipts
McGraw-Hill/Irwin
September
$ 70,000
$ 42,000
October
$ 100,000
$ 60,000
$
$
40,000
42,000
82,000
November
$ 80,000
$ 48,000
$
$
32,000
60,000
92,000
December
$ 140,000
$ 84,000
56,000
48,000
$ 104,000
$
© The McGraw-Hill Companies, Inc., 2005
23-27
Cash Disbursements for Purchases

Hockey Den’s purchases
of merchandise are
entirely on account.

Full payment is made in
the month following
purchase.

The September 30
balance of Accounts
Payable is $58,200.
Let’s look at cash disbursements
for purchases for Hockey Den.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-28
Cash Disbursements for Purchases
Exh.
23-13
HOCKEY DEN
Cash Disbursements for Purchases
October 2005 - December 2005
October payments (September 30 balance)
November payments (October purchases)
December payments (November purchases)
$ 58,200
49,200
80,400
From merchandise purchases budget
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-29
Cash Budget
Hockey Den:
 Will pay a cash dividend of $3,000 in November.
 Will purchase $25,000 of equipment in December.
 Has an income tax liability of $20,000 from the
previous quarter that will be paid in October.
 Has a September 30 cash balance of $20,000.
 Has an agreement with its bank for loans at the end
of each month to enable a minimum cash balance of
$20,000.
Continue
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-30
Cash Budget
Hockey Den:
 Pays interest equal to one percent of the prior
month’s ending loan balance.
 Repays loans when the ending cash balance
exceeds $20,000.
 Owes $10,000 on this loan arrangement on
September 30.
 Has 40 percent income tax rate.
 Will pay taxes for current quarter next year.
Let’s prepare the cash budget for Hockey Den.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-31
Exh.
23-11
HOCKEY DEN
Cash Budget
October 2005 - December 2005
October
$ 20,000
82,000
$ 102,000
Beginning cash balance
Receipts from customers
Total cash available
Disbursements
Payments for merchandise
Sales commissions
Sales salaries
Administrative salaries
Income taxes
Dividends
From
Interest
Equipment purchase
Total disbursements
Preliminary balance
McGraw-Hill/Irwin
November
December
92,000
104,000
Cash Receipts Budget
© The McGraw-Hill Companies, Inc., 2005
23-32
HOCKEY DEN
Cash Budget
October 2005 - December 2005
October
$ 20,000
82,000
$ 102,000
November
Exh.
23-11
December
Beginning cash balance
Receipts from customers
92,000
104,000
Total cash available
Disbursements
Payments for merchandise $ 58,200
$ 49,200
$ 80,400
Sales commissions
Sales salaries
Administrative salaries
Income taxes
From Cash Disbursements
Dividends
for Purchases
Interest
Equipment purchase
Total disbursements
Preliminary balance
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-33
Exh.
23-11
HOCKEY DEN
Cash Budget
October 2005 - December 2005
October
$ 20,000
82,000
$ 102,000
November
Beginning cash balance
Receipts from customers
92,000
Total cash available
Disbursements
Payments for merchandise $ 58,200
$ 49,200
Sales commissions
10,000
8,000
Sales salaries
2,000
2,000
Administrative salaries
Income taxes
Dividends
From Selling Expense
Interest
Equipment purchase
Total disbursements
Preliminary balance
McGraw-Hill/Irwin
December
104,000
$ 80,400
14,000
2,000
Budget
© The McGraw-Hill Companies, Inc., 2005
23-34
HOCKEY DEN
Cash Budget
October 2005 - December 2005
October
$ 20,000
82,000
$ 102,000
November
Exh.
23-11
December
Beginning cash balance
Receipts from customers
92,000
104,000
Total cash available
Disbursements
Payments for merchandise $ 58,200
$ 49,200
$ 80,400
Sales commissions
10,000
8,000
14,000
Sales salaries
2,000
2,000
2,000
Administrative salaries
4,500
4,500
4,500
Income taxes
Dividends
From General and
Interest
Administrative Expense Budget
Equipment purchase
Depreciation is a
Total disbursements
Preliminary balance
non-cash expense.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-35
HOCKEY DEN
Cash Budget
October 2005 - December 2005
October
$ 20,000
82,000
$ 102,000
Beginning cash balance
Receipts from customers
Total cash available
Disbursements
Payments for merchandise $
Sales commissions
Sales salaries
Administrative salaries
Income taxes
Dividends
.01 × $10,000
Interest
Equipment purchase
Total disbursements
$
Preliminary balance
$
McGraw-Hill/Irwin
November
Exh.
23-11
December
Because
Hockey
Den
92,000
104,000
maintains a minimum
cash balance of $20,000,
58,200 the
$ 49,200
80,400
company$ must
10,000
8,000 $12,800.
14,000
borrow
2,000
4,500
20,000
2,000
4,500
2,000
4,500
100
94,800
7,200
© The McGraw-Hill Companies, Inc., 2005
23-36
Cash Budget Continued
Exh.
23-11
HOCKEY DEN
Cash Budget
October 2005 - December 2005
Preliminary balance
Additional borrowing
Loan repayment
Ending cash balance
Ending loan balance
October
$ 7,200
12,800
November
December
$ 20,000
$ 22,800
Ending cash balance for October
is the beginning November balance.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-37
HOCKEY DEN
Cash Budget
October 2005 - December 2005
October
$ 20,000
82,000
$ 102,000
November
$ 20,000
92,000
$ 112,000
December
58,200
10,000
2,000
4,500
20,000
$ 49,200
8,000
2,000
4,500
$ 80,400
14,000
2,000
4,500
Beginning cash balance
Receipts from customers
Total cash available
Disbursements
Payments for merchandise $
Sales commissions
Sales salaries
Administrative salaries
Income taxes
Dividends
.01 × $22,800
Interest
Equipment purchase
Total disbursements
$
Preliminary balance
$
McGraw-Hill/Irwin
Exh.
23-11
100
3,000
228
94,800
7,200
$ 66,928
$ 45,072
104,000
Cash balance
is sufficient
to repay the
$22,800 loan.
© The McGraw-Hill Companies, Inc., 2005
23-38
Cash Budget Continued
Exh.
23-11
HOCKEY DEN
Cash Budget
October 2005 - December 2005
Preliminary balance
Additional borrowing
Loan repayment
Ending cash balance
Ending loan balance
October
$ 7,200
12,800
$ 20,000
$ 22,800
November
$ 45,072
December
(22,800)
$ 22,272
$
0
Ending cash balance for November
is the beginning December balance.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-39
HOCKEY DEN
Cash Budget
October 2005 - December 2005
Beginning cash balance
Receipts from customers
Total cash available
Disbursements
Payments for merchandise
Sales commissions
Sales salaries
Administrative salaries
Income taxes
Dividends
Interest
Equipment purchase
Total disbursements
Preliminary balance
McGraw-Hill/Irwin
Exh.
23-11
October
$ 20,000
82,000
$ 102,000
November
$ 20,000
92,000
$ 112,000
December
$ 22,272
104,000
$ 126,272
$ 58,200
10,000
2,000
4,500
20,000
$ 49,200
8,000
2,000
4,500
$ 80,400
14,000
2,000
4,500
100
$ 94,800
$ 7,200
3,000
228
$ 66,928
$ 45,072
25,000
$ 125,900
$
372
© The McGraw-Hill Companies, Inc., 2005
23-40
Cash Budget Continued
Exh.
23-11
HOCKEY DEN
Cash Budget
October 2005 - December 2005
Preliminary balance
Additional borrowing
Loan repayment
Ending cash balance
Ending loan balance
McGraw-Hill/Irwin
October
$ 7,200
12,800
$ 20,000
$ 22,800
November
$ 45,072
(22,800)
$ 22,272
$
0
December
$
372
19,628
$ 20,000
$ 19,628
© The McGraw-Hill Companies, Inc., 2005
23-41
Budgeted Income Statement
Cash
Budget
Budgeted
Income
Statement
Let’s prepare the budgeted income
statement for Hockey Den.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-42
From the Sales Budget
HOCKEY DEN
Budgeted Income Statement
For Three Months Ended December 31, 2005
Sales (3,200 units @ $100)
Cost of goods sold (3,200 units @ $60)
Gross profit
Operating expenses:
Sales commissions
Sales salaries
Administrative salaries
Equipment depreciation
Interest expense
Net income before taxes
Income tax expense
Net income
McGraw-Hill/Irwin
Exh.
23-14
$ 320,000
192,000
$ 128,000
$ 32,000
6,000
13,500
4,500
328
56,328
$ 71,672
28,669
$ 43,003
© The McGraw-Hill Companies, Inc., 2005
23-43
From the Merchandise
Purchases Budget
HOCKEY DEN
Budgeted Income Statement
For Three Months Ended December 31, 2005
Sales (3,200 units @ $100)
Cost of goods sold (3,200 units @ $60)
Gross profit
Operating expenses:
Sales commissions
Sales salaries
Administrative salaries
Equipment depreciation
Interest expense
Net income before taxes
Income tax expense
Net income
McGraw-Hill/Irwin
Exh.
23-14
$ 320,000
192,000
$ 128,000
$ 32,000
6,000
13,500
4,500
328
56,328
$ 71,672
28,669
$ 43,003
© The McGraw-Hill Companies, Inc., 2005
23-44
HOCKEY DEN
Budgeted Income Statement
For Three Months Ended December 31, 2005
Sales (3,200 units @ $100)
Cost of goods sold (3,200 units @ $60)
Gross profit
Operating expenses:
Sales commissions
$ 32,000
Sales salaries
6,000
Administrative salaries
13,500
Equipment depreciation
4,500
Interest expense
328
Net income before taxes
From the Selling
Income tax expense
Expense Budget
Net income
McGraw-Hill/Irwin
Exh.
23-14
$ 320,000
192,000
$ 128,000
56,328
$ 71,672
28,669
$ 43,003
© The McGraw-Hill Companies, Inc., 2005
23-45
HOCKEY DEN
Budgeted Income Statement
For Three Months Ended December 31, 2005
Sales (3,200 units @ $100)
Cost of goods sold (3,200 units @ $60)
Gross profit
Operating expenses:
Sales commissions
$ 32,000
Sales salaries
6,000
Administrative salaries
13,500
Equipment depreciation
4,500
Interest expense
328
Net incomeFrom
before
taxes
the
General and Administrative
Income tax expense Expense Budget
Net incomeDepreciation is a non-cash expense.
McGraw-Hill/Irwin
Exh.
23-14
$ 320,000
192,000
$ 128,000
56,328
$ 71,672
28,669
$ 43,003
© The McGraw-Hill Companies, Inc., 2005
23-46
HOCKEY DEN
Budgeted Income Statement
For Three Months Ended December 31, 2005
Sales (3,200 units @ $100)
Cost of goods sold (3,200 units @ $60)
Gross profit
Operating expenses:
Sales commissions
$ 32,000
Sales salaries
6,000
Administrative salaries
13,500
Equipment depreciation
4,500
Interest expense
328
Net income before taxes
Income tax expense
From the Cash Budget
Net income
McGraw-Hill/Irwin
Exh.
23-14
$ 320,000
192,000
$ 128,000
56,328
$ 71,672
28,669
$ 43,003
© The McGraw-Hill Companies, Inc., 2005
23-47
HOCKEY DEN
Budgeted Income Statement
For Three Months Ended December 31, 2005
Sales (3,200 units @ $100)
Cost of goods sold (3,200 units @ $60)
Gross profit
Operating expenses:
Sales commissions
$
Sales salaries
Administrative salaries
Equipment depreciation
Interest expense
Net income before taxes
Income tax expense
$71,672 × .40
Net income
McGraw-Hill/Irwin
Exh.
23-14
$ 320,000
192,000
$ 128,000
32,000
6,000
13,500
4,500
328
56,328
$ 71,672
28,669
$ 43,003
© The McGraw-Hill Companies, Inc., 2005
23-48
Budgeted Balance Sheet
Budgeted
Income
Statement
Budgeted
Balance
Sheet
Let’s prepare the budgeted balance
sheet for Hockey Den.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-49
Preparing a Budgeted Balance Sheet
Hockey Den reports the following account
balances on September 30 prior to
preparing its budgeted financial statements:
Equipment
Accumulated depreciation
Common stock
Retained earnings
$200,000
$ 36,000
$150,000
$ 41,800
Let’s prepare the budgeted balance
sheet for Hockey Den.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-50
HOCKEY DEN
Budgeted Balance Sheet
December 31, 2005
Exh.
23-15
Assets
Cash
Accounts receivable
Inventory
Equipment
Less accumulated depreciation
Total assets
$ 20,000
84,000
48,600
$ 225,000
40,500
184,500
$337,100
Liabilities and Equity
Liabilities
Accounts payable
Income taxes payable
Bank loan payable
Stockholders' equity
Common stock
Retained earnings
Total liabilities and equity
McGraw-Hill/Irwin
$ 57,000
28,669
19,628
$ 150,000
81,803
$105,297
231,803
$337,100
© The McGraw-Hill Companies, Inc., 2005
23-51
Exh.
23-15
HOCKEY DEN
Budgeted Balance Sheet
December 31, 2005
Assets
Cash
From the Cash
Accounts receivable
Inventory
Equipment
Less accumulated depreciation
Total assets
Budget
$ 20,000
84,000
48,600
$ 225,000
40,500
184,500
$337,100
Liabilities and Equity
Liabilities
Accounts payable
Income taxes payable
Bank loan payable
Stockholders' equity
Common stock
Retained earnings
Total liabilities and equity
McGraw-Hill/Irwin
$ 57,000
28,669
19,628
$ 150,000
81,803
$105,297
231,803
$337,100
© The McGraw-Hill Companies, Inc., 2005
23-52
Exh.
23-15
HOCKEY DEN
Budgeted Balance Sheet
December 31, 2005
From the Cash Receipts
Assets
Budget
Cash
Accounts receivable
Inventory
Equipment
Less accumulated depreciation
Total assets
$ 20,000
84,000
48,600
$ 225,000
40,500
184,500
$337,100
Liabilities and Equity
Liabilities
Accounts payable
Income taxes payable
Bank loan payable
Stockholders' equity
Common stock
Retained earnings
Total liabilities and equity
McGraw-Hill/Irwin
$ 57,000
28,669
19,628
$ 150,000
81,803
$105,297
231,803
$337,100
© The McGraw-Hill Companies, Inc., 2005
23-53
Exh.
23-15
HOCKEY DEN
Budgeted Balance Sheet
December 31, 2005
From the Merchandise Purchases Budget
Assets
8,100
units
@
$6
Cash
Accounts receivable
Inventory
Equipment
Less accumulated depreciation
Total assets
$ 225,000
40,500
$ 20,000
84,000
48,600
184,500
$337,100
Liabilities and Equity
Liabilities
Accounts payable
Income taxes payable
Bank loan payable
Stockholders' equity
Common stock
Retained earnings
Total liabilities and equity
McGraw-Hill/Irwin
$ 57,000
28,669
19,628
$ 150,000
81,803
$105,297
231,803
$337,100
© The McGraw-Hill Companies, Inc., 2005
23-54
Exh.
23-15
HOCKEY DEN
Budgeted Balance Sheet
December 31, 2005
$200,000 September 30 balance plus the
Assets
$25,000
December
acquisition
Cash
Accounts receivable
Inventory
Equipment
Less accumulated depreciation
Total assets
$ 225,000
40,500
$ 20,000
84,000
48,600
184,500
$337,100
Liabilities and Equity
Liabilities
Accounts payable
Income taxes payable
Bank loan payable
Stockholders' equity
Common stock
Retained earnings
Total liabilities and equity
McGraw-Hill/Irwin
$ 57,000
28,669
19,628
$ 150,000
81,803
$105,297
231,803
$337,100
© The McGraw-Hill Companies, Inc., 2005
23-55
Exh.
23-15
HOCKEY DEN
Budgeted Balance Sheet
December 31, 2005
$36,000 September 30 balance plus the
Assets
$4,500
from
the
General
and
Cash
Administrative
Accounts
receivable Expense Budget
Inventory
Equipment
Less accumulated depreciation
Total assets
$ 225,000
40,500
$ 20,000
84,000
48,600
184,500
$337,100
Liabilities and Equity
Liabilities
Accounts payable
Income taxes payable
Bank loan payable
Stockholders' equity
Common stock
Retained earnings
Total liabilities and equity
McGraw-Hill/Irwin
$ 57,000
28,669
19,628
$ 150,000
81,803
$105,297
231,803
$337,100
© The McGraw-Hill Companies, Inc., 2005
23-56
Exh.
23-15
HOCKEY DEN
Budgeted Balance Sheet
December 31, 2005
Assets
Cash
Accounts receivable
Inventory
Equipment From the Merchandise
Less accumulated depreciation
Purchases Budget
Total assets
$ 20,000
84,000
48,600
$ 225,000
40,500
184,500
$337,100
Liabilities and Equity
Liabilities
Accounts payable
Income taxes payable
Bank loan payable
Stockholders' equity
Common stock
Retained earnings
Total liabilities and equity
McGraw-Hill/Irwin
$ 57,000
28,669
19,628
$ 150,000
81,803
$105,297
231,803
$337,100
© The McGraw-Hill Companies, Inc., 2005
23-57
Exh.
23-15
HOCKEY DEN
Budgeted Balance Sheet
December 31, 2005
Assets
Cash
Accounts receivable
Inventory
Equipment
Less accumulated
Fromdepreciation
the Budgeted
Total assets
$ 20,000
84,000
48,600
$ 225,000
40,500
Income Statement
184,500
$337,100
Liabilities and Equity
Liabilities
Accounts payable
Income taxes payable
Bank loan payable
Stockholders' equity
Common stock
Retained earnings
Total liabilities and equity
McGraw-Hill/Irwin
$ 57,000
28,669
19,628
$ 150,000
81,803
$105,297
231,803
$337,100
© The McGraw-Hill Companies, Inc., 2005
23-58
HOCKEY DEN
Budgeted Balance Sheet
December 31, 2005
Exh.
23-15
Assets
Cash
Accounts receivable
Inventory
Equipment
Less accumulated depreciation
Total assets
$ 20,000
84,000
48,600
$ 225,000
40,500
184,500
$337,100
From theLiabilities
Cash Budget
and Equity
Liabilities
Accounts payable
Income taxes payable
Bank loan payable
Stockholders' equity
Common stock
Retained earnings
Total liabilities and equity
McGraw-Hill/Irwin
$ 57,000
28,669
19,628
$ 150,000
81,803
$105,297
231,803
$337,100
© The McGraw-Hill Companies, Inc., 2005
23-59
Exh.
23-15
HOCKEY DEN
Budgeted Balance Sheet
December 31, 2005
Assets
Cash
Accounts receivable
Inventory
Equipment
Less accumulated depreciation
Total assets
$ 20,000
84,000
48,600
$ 225,000
40,500
184,500
$337,100
Beginning retained earnings
$ 41,800
Liabilities and Equity
Add
net
income
43,003
Liabilities
Deduct
dividends
Accounts
payable
$ 57,000 (3,000)
Ending
retained
$ 81,803
Income
taxes
payable earnings
28,669
Bank loan payable
Stockholders' equity
Common stock
Retained earnings
Total liabilities and equity
McGraw-Hill/Irwin
19,628
$ 150,000
81,803
$105,297
231,803
$337,100
© The McGraw-Hill Companies, Inc., 2005
23-60
4. Decision Analysis
- Activity-Based Budgeting
Exh.
23-16
Activity-based budgeting is based on
activities rather than traditional items such as
salaries, supplies, depreciation, and utilities.
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005
23-61
End of Chapter 23
McGraw-Hill/Irwin
© The McGraw-Hill Companies, Inc., 2005