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Chapter 17
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Where are we headed?
After completing this chapter,
you should be able to:
s dene @BUDGETING
s distinguish BETWEEN
BUDGETED AND ACTUAL REPORTS
s explain THE PURPOSES OF
BUDGETING
s describe THE BUDGETING
PROCESS
s prepare BUDGETED REPORTS
FOR CASH PROlT AND lNANCIAL
POSITION
s explain THE USES OF BUDGETED
REPORTS
s suggest STRATEGIES TO ADDRESS
PROBLEMS IDENTIlED BY
BUDGETED REPORTS
s distinguish BETWEEN CASH
AND PROlT ITEMS IN BUDGETED
REPORTS
s prepare A 3CHEDULE OF
2ECEIPTS FROM $EBTORS
s reconstruct LEDGER ACCOUNTS
TO DETERMINE BUDGETED
lGURES
s prepare VARIANCE REPORTS FOR
CASH AND PROlT
s distinguish BETWEEN
FAVOURABLE AND UNFAVOURABLE
VARIANCES
CHAPTER 17
BUDGETS
KEY TERMS
After completing this chapter, you should be familiar
with the following terms:
s BUDGETING
s BUDGET
s "UDGETED #ASH &LOW 3TATEMENT
s "UDGETED )NCOME 3TATEMENT
s "UDGETED "ALANCE 3HEET
s 3CHEDULE OF 2ECEIPTS FROM $EBTORS
s 3CHEDULE OF 0AYMENTS TO #REDITORS
s VARIANCE REPORT
s #ASH "UDGET 6ARIANCE 2EPORT
s VARIANCE
s )NCOME 3TATEMENT 6ARIANCE 2EPORT
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CAMBRIDGE VCE ACCOUNTING
388
UNITS 3&4
17.1 BUDGETING
budgeting
the process of predicting/
estimating the nancial
consequences of future
events
budget
an accounting report that
predicts/estimates the
nancial consequences of
future events
3O FAR THIS TEXT HAS DEALT ONLY WITH HISTORICAL TRANSACTIONS CONCENTRATING ON HOW TO IDENTIFY
RECORD AND REPORT EVENTS THAT HAVE ALREADY OCCURRED 4HIS IS A LOGICAL STARTING POINT TO
ANALYSE BUSINESS PERFORMANCE AS WITHOUT INFORMATION ON WHAT HAS ALREADY HAPPENED WE
ARE UNABLE TO IDENTIFY AREAS THAT MAY NEED TO BE IMPROVED (OWEVER IT IS ALSO IMPORTANT
TO KEEP AN EYE ON THE FUTURE "USINESS OWNERS MUST ATTEMPT TO PREDICT WHAT WILL HAPPEN
IN THE FUTURE SO THAT THEY CAN PLAN AHEAD AND BE PREPARED FOR WHAT IS LIKELY TO OCCUR
4HIS IS THE FOCUS OF budgeting THE PROCESS OF PREPARING REPORTS THAT estimate OR PREDICT
THE lNANCIAL CONSEQUENCES OF LIKELY future TRANSACTIONS
Budgeted reports
! SMALL BUSINESS OWNER COULD PREPARE A budget ON JUST ABOUT ANY AREA OF BUSINESS
PERFORMANCE RANGING FROM HOW MANY SALES ARE MADE IN A MONTH TO HOW MUCH WILL
BE SPENT ON ADVERTISING AND HOW MANY RETURNS WILL BE MADE )N THIS COURSE WE WILL
CONCENTRATE ON THREE GENERAL
PURPOSE BUDGETS
s THE Budgeted Cash Flow Statement WHICH SHOWS ALL EXPECTED FUTURE CASH INmOWS
AND CASH OUTmOWS THE ACTUAL BANK BALANCE AT THE START OF THE PERIOD AND THE
EXPECTED BANK BALANCE AT THE END OF THE PERIOD
s THE Budgeted Income Statement WHICH SHOWS ALL EXPECTED FUTURE REVENUES AND
EXPENSES AND THE EXPECTED 'ROSS 0ROlT !DJUSTED 'ROSS 0ROlT AND .ET 0ROlT
s THE Budgeted Balance Sheet WHICH SHOWS ALL EXPECTED ASSETS LIABILITIES AND OWNERS
EQUITY AT SOME POINT IN THE FUTURE
Budgeted versus actual reports
STUDY TIP
)F YOU CAN PREPARE
REPORTS YOU CAN
PREPARE BUDGETED
REPORTS BECAUSE THEY
CONTAIN THE SAME
TYPES OF ITEMS
"UDGETS OR BUDGETED REPORTS DIFFER FROM THE ACTUAL OR HISTORICAL REPORTS WE HAVE
PREPARED SO FAR IN TWO KEY WAYS
s "UDGETS REPORT future EVENTS RATHER THAN HISTORICAL EVENTS 4HEY FOCUS ON WHAT WILL
HAPPEN RATHER THAN WHAT HAS ALREADY HAPPENED
s !S A CONSEQUENCE BUDGETS USE estimates OR predictions RATHER THAN ACTUAL VERIlABLE
DATA
)N ALL OTHER WAYS BUDGETED REPORTS ARE THE SAME AS ACTUAL REPORTS THEY USE THE SAME
HEADINGS AND INCLUDE THE SAME ITEMS
The importance of budgeted Sales
!S WE HAVE SEEN IN EARLIER CHAPTERS THE ACCOUNTING REPORTS ARE INTERCONNECTED WITH
TRANSACTIONS REPORTED IN ONE AFFECTING ITEMS REPORTED IN ANOTHER AND THIS IS NO DIFFERENT
FOR BUDGETS 4HIS MEANS IT IS ESSENTIAL THAT THE PREPARATION OF BUDGETED REPORTS BEGIN
WITH AN ACCURATE ESTIMATE OF BUDGETED SALES
&IRST SALES IS THE MAIN REVENUE ITEM IN THE "UDGETED )NCOME 3TATEMENT AND
GENERATES SIGNIlCANT CASH INmOWS EITHER AS #ASH 3ALES OR IF CREDIT SALES ARE INVOLVED
AS 2ECEIPTS FROM $EBTORS 3ECOND THE LEVEL OF SALES WILL BE CRUCIAL IN ESTIMATING THE
EXPENSES THAT VARY WITH THE NUMBER OF UNITS SOLD SUCH AS #OST OF 3ALES AND 7AGES AND
THEIR CORRESPONDING CASH OUTmOWS 4HIRD THE LEVEL OF SALES WILL AFFECT HOW MUCH STOCK IS
PURCHASED WHICH WILL IN TURN AFFECT CASH PAID TO CREDITORS
4HE "ALANCE 3HEET DOES NOT REPORT SALES DIRECTLY BUT BECAUSE IT USES lGURES DERIVED
FROM THE OTHER TWO REPORTS ITS ACCURACY IS ALSO DEPENDANT ON AN ACCURATE ESTIMATE OF
SALES !T THE VERY LEAST THE EXPECTED BANK lGURE WILL COME STRAIGHT FROM THE "UDGETED
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
BUDGETS
389
#ASH &LOW 3TATEMENT AND THE EXPECTED .ET 0ROlT OR ,OSS WILL BE DETERMINED IN THE
"UDGETED )NCOME 3TATEMENT
The purpose of budgeting
)N COMMON WITH ALL ACCOUNTING REPORTS BUDGETS HAVE A ROLE IN BOTH PLANNING AND
DECISION MAKING 3PECIlCALLY
s "UDGETING assists planning BY PREDICTING WHAT IS LIKELY TO OCCUR IN THE FUTURE 4HIS
ALLOWS THE OWNER TO PREPARE SO THAT POSSIBLE PROBLEMS MAY BE MANAGED AND
POSSIBLE OPPORTUNITIES MAY BE TAKEN
s "UDGETING aids decision-making BY PROVIDING A STANDARD AGAINST WHICH ACTUAL
PERFORMANCE CAN BE MEASURED 4HIS ALLOWS THE OWNER TO IDENTIFY AREAS IN WHICH
PERFORMANCE IS UNSATISFACTORY SO THAT REMEDIAL ACTION CAN BE TAKEN 4HIS CAN INCLUDE
THE CALCULATION OF BUDGETED RATIOS AND OTHER INDICATORS OF PERFORMANCE
In common with all
accounting reports,
budgets have a role in
both planning and
decision-making
REVIEW QUESTIONS 17.1
1 Dene THE TERM @BUDGETING
2 Identify THE INFORMATION THAT IS REPORTED IN A
s "UDGETED #ASH &LOW 3TATEMENT
s "UDGETED )NCOME 3TATEMENT
s "UDGETED "ALANCE 3HEET
3 State TWO DIFFERENCES BETWEEN THE INFORMATION PRESENTED IN BUDGETED REPORTS
AND ACTUAL REPORTS
4 Explain WHY IT IS IMPORTANT TO HAVE AN ACCURATE ESTIMATE OF BUDGETED SALES
5 Explain HOW BUDGETS ASSIST PLANNING
6 Explain HOW BUDGETS ASSIST DECISION
MAKING
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CAMBRIDGE VCE ACCOUNTING
390
STUDY TIP
)F '34 IS IDENTIlED IT
CAN BE RECORDED IN THE
#ASH 2ECEIPTS *OURNAL
UNITS 3&4
17.2 THE BUDGETING PROCESS
)T HAS BEEN SAID THAT FAILING TO PLAN IS PLANNING TO FAIL SO THE PREPARATION OF BUDGETED
REPORTS SHOULD BE ONE OF THE lRST STEPS IN STARTING A NEW BUSINESS (OWEVER BUDGETING
SHOULD BE A continuous process BUDGETS SHOULD BE COMPARED AGAINST ACTUAL REPORTS TO
ALLOW PROBLEMS TO BE IDENTIlED DECISIONS SHOULD BE MADE BASED ON THAT ASSESSMENT
AND THEN NEW BUDGETS SHOULD BE PREPARED FOR THE next PERIOD 4HIS BUDGETING PROCESS
IS SHOWN IN &IGURE
Figure 17.1
The budgeting process
Budgeted reports are prepared,
predicting what is likely to occur
Decisions are made to improve business
performance for the next period
Actual reports are prepared to detail
what has happened in the current period
Variance reports are prepared to
highlight differences/problem areas
! BUDGET HAS LIMITED VALUE IF IT IS NOT USED TO MAKE DECISIONS TO IMPROVE BUSINESS
PERFORMANCE IN THE FUTURE )N ADDITION IT MAKES LITTLE SENSE TO DEVELOP A BUDGET FOR
ONE PERIOD WITHOUT PREPARING ANOTHER BUDGET FOR THE NEXT PERIOD 5NDER THE 'OING
#ONCERN PRINCIPLE BUSINESSES ARE ASSUMED TO BE CONTINUOUS SO THE BUDGETING PROCESS
SHOULD BE CONTINUOUS TOO
4HE INFORMATION PRESENTED IN THE BUDGETED REPORTS SHOULD BE BASED ON THE HISTORICAL
DATA BUT ALLOWANCES MUST BE MADE FOR CHANGES AND THE EFFECT OF NEW BUSINESS DECISIONS
/BVIOUSLY A BRAND NEW BUSINESS WILL NOT HAVE ANY HISTORICAL DATA ON WHICH TO RELY THIS
MAKES BUDGETING HARDER FOR NEW BUSINESSES BUT NO LESS IMPORTANT
REVIEW QUESTIONS 17.2
1 Explain WHY BUDGETING IS DESCRIBED AS A PROCESS
2 Outline THE VARIOUS STAGES IN THE BUDGETING PROCESS
3 Explain THE ROLE OF HISTORICAL DATA IN THE PREPARATION OF BUDGETED REPORTS
17.3 THE BUDGETED CASH FLOW STATEMENT
Budgeted Cash Flow
Statement
an accounting report that
attempts to predict all
future cash inows and
cash outows, and thus the
estimated bank balance
at the end of the budget
period
)N ORDER TO SURVIVE A SMALL BUSINESS MUST HAVE SUFlCIENT CASH TO MEET ITS OBLIGATIONS
4HESE OBLIGATIONS WILL INCLUDE MAKING 0AYMENTS TO #REDITORS PAYING EXPENSES SUCH AS
WAGES RENT AND ADVERTISING MEETING LOAN REPAYMENTS AND PROVIDING DRAWINGS FOR THE
OWNER )N ORDER TO DO THIS THE BUSINESS MUST GENERATE SUFlCIENT CASH INmOWS CHIEmY
THROUGH ITS #ASH 3ALES AND 2ECEIPTS FROM $EBTORS 4HE Budgeted Cash Flow Statement
ATTEMPTS TO PREDICT ALL FUTURE CASH INmOWS AND CASH OUTmOWS AND THUS THE ESTIMATED
BANK BALANCE AT THE END OF THE BUDGETED PERIOD TO ASSIST THE OWNER IN ASSESSING THE
lRMS ABILITY TO MEET ITS OBLIGATIONS OVER THE BUDGET PERIOD
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
BUDGETS
391
2EMEMBER THAT THE #ASH &LOW 3TATEMENT CLASSIlED THE INmOWS AND OUTmOWS AS
/PERATING )NVESTING AND &INANCING ACTIVITIES AND THESE CLASSIlCATIONS MUST ALSO BE
PRESENT IN THE "UDGETED #ASH &LOW 3TATEMENT
Operating activities
/PERATING ACTIVITIES ARE ALL CASH mOWS RELATED TO THE lRMS DAY
TO
DAY TRADING ACTIVITIES
/PERATING CASH mOWS THAT WE WOULD EXPECT TO SEE IN A TYPICAL "UDGETED #ASH &LOW
3TATEMENT MIGHT INCLUDE
Operating cash inows
#ASH 3ALES
2ECEIPTS FROM $EBTORS
/THER REVENUE received
MAY ALSO BE TITLED @ACCRUED ANDOR @PREPAID
'34 RECEIVED
'34 REFUND
Operating cash outows
#ASH PURCHASES OF STOCK
0AYMENTS TO #REDITORS
/THER %XPENSES paid
MAY ALSO BE TITLED @ACCRUED ANDOR @PREPAID
'34 PAID
'34 SETTLEMENT
)DEALLY THE BUDGETED .ET #ASH &LOWS FROM /PERATIONS WILL BE POSITIVE 4HIS MEANS
THAT THE BUSINESS WILL GENERATE SUFlCIENT CASH FROM ITS /PERATIONS TO MEET ITS ONGOING
OBLIGATIONS "Y PREPARING THE "UDGETED #ASH &LOW 3TATEMENT THE OWNER WILL BE
FOREWARNED IF THE /PERATING CASH mOWS ARE EXPECTED TO BE NEGATIVE 4HE OWNER CAN THEN
TAKE STEPS TO ADDRESS THE CASH SHORTAGE BEFORE IT OCCURS BY IMPLEMENTING STRATEGIES TO
s INCREASE EXPECTED INmOWS SUCH AS
n INCREASE 3ALES FOR EXAMPLE VIA PROMOTIONS GREATER ADVERTISING OR DISCOUNTING
PRICES
n INCREASE 2ECEIPTS FROM $EBTORS FOR EXAMPLE VIA OFFERING DISCOUNTS CONTACTING
SLOW PAYERS OR SENDING REMINDER NOTICES
s DECREASE EXPECTED OUTmOWS SUCH AS
n DEFER 0AYMENTS TO #REDITORS
n CUT BACK ON CASH PAID FOR EXPENSES
4HE OWNER MUST BE PARTICULARLY MINDFUL OF REDUCING CASH PAID FOR EXPENSES AS THE
BENElTS THAT EXPENSES PROVIDE ARE VITAL IN THE EARNING OF SALES AND HENCE THE GENERATION
OF CASH INmOWS CUTTING EXPENSES MAY MAKE THE CASH SITUATION WORSE RATHER THAN BETTER
Investing activities
)NVESTING ACTIVITIES ARE ALL CASH mOWS RELATING TO THE PURCHASE OR SALE OF NON
CURRENT ASSETS
)NVESTING CASH mOWS THAT WE WOULD EXPECT TO SEE IN A TYPICAL "UDGETED #ASH &LOW
3TATEMENT MIGHT INCLUDE
Investing cash inows
Investing cash outows
#ASH SALE OF A NON CURRENT ASSET
#ASH PURCHASE OF A NON CURRENT ASSET
#ASH PAID TO A SUNDRY CREDITOR
STUDY TIP
'IVEN THAT NON
CURRENT ASSETS ARE FREQUENTLY EXPENSIVE AND SALES OF NON
CURRENT
ASSETS ARE RARE IT WILL BE COMMON FOR BUDGETED .ET #ASH &LOWS FROM )NVESTING !CTIVITIES
TO BE NEGATIVE
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
4HESE THREE )NVESTING
CASH mOWS ARE THE ONLY
ONES IN THIS COURSE BUT
THERE MAY BE MORE THAN
ONE OF EACH TYPE
Cambridge University Press
CAMBRIDGE VCE ACCOUNTING
392
STUDY TIP
4HESE FOUR &INANCING
CASH mOWS ARE THE ONLY
ONES IN THIS COURSE
UNITS 3&4
Financing activities
&INANCING ACTIVITIES ARE ALL CASH mOWS THAT ARE THE RESULT OF CHANGES IN THE lRMS lNANCIAL
STRUCTURE
&INANCING CASH mOWS THAT WE WOULD EXPECT TO SEE IN A TYPICAL "UDGETED #ASH &LOW
3TATEMENT MIGHT INCLUDE
Financing cash inows
Financing cash outows
,OAN RECEIPT OF
,OAN REPAYMENT PRINCIPAL ONLY
#APITAL CONTRIBUTION CASH ONLY
#ASH DRAWINGS
7HETHER .ET #ASH &LOWS FROM &INANCING !CTIVITIES IS POSITIVE OR NEGATIVE WILL DEPEND
VERY MUCH ON WHETHER THE BUSINESS IS EXPANDING OR SIMPLY CONTINUING ITS OPERATIONS AS
THEY ARE 4HERE MAY IN FACT BE A RELATIONSHIP BETWEEN &INANCING AND )NVESTING !CTIVITIES
NEGATIVE )NVESTING CASH mOWS DUE TO THE PURCHASE OF NON
CURRENT ASSETS COULD BE
lNANCED BY POSITIVE &INANCING CASH mOWS IN THE FORM OF A LOAN OR CAPITAL CONTRIBUTION
EXAMPLE
Denzel Washing Machines will begin trading Operations on 1 March
2016, and has provided the following estimates for its first month of
Operations:
s 4HE OWNER WILL MAKE A CAPITAL CONTRIBUTION OF $30 000 to commence
Operations.
s #ASH 3ALES ARE ESTIMATED TO BE $24 000 PLUS '34
s #REDIT 3ALES ARE ESTIMATED TO BE INCLUDING '34 /F THIS
amount, $11 000 is expected to be received in March 2016.
s !LL STOCK WILL BE PURCHASED ON CREDIT 0URCHASES FOR -ARCH ARE
EXPECTED TO BE PLUS '34 !T THE END OF -ARCH
it is anticipated that $6 500 will be owed to creditors.
s #OST OF 3ALES IS EXPECTED TO BE AND BASED ON THE
experience of similar firms, Stock Loss is expected to be $300.
s 4HE FOLLOWING EXPENSES WILL BE INCURRED DURING -ARCH
wages
$ 8 000
advertising
1 300 (plus $130 '34
depreciation of office equipment
100
s 2ENT FOR THE NEXT SIX MONTHS WILL BE PAID ON -ARCH $9 000
plus $900 '34
s .EW OFFICE EQUIPMENT WORTH $5 000 (plus $500 '34 WILL BE
purchased on 1 March 2016 using cash.
s #ASH DRAWINGS WILL BE $1 000. Drawings of stock is expected to be
$600.
s /N -ARCH $10 000 will be borrowed from AXC Bank to
purchase a new vehicle. Beginning in April 2016, $500 will be paid
OFF THE PRINCIPAL EACH MONTH 4HE VEHICLE WILL NOT BE PURCHASED UNTIL
April 2016.
4HE "UDGETED #ASH &LOW 3TATEMENT FOR $ENZEL 7ASHING -ACHINES IS SHOWN IN &IGURE
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
Figure 17.2
BUDGETS
Budgeted Cash Flow Statement
STUDY
DENZEL WASHING MACHINES
Budgeted Cash Flow Statement for March 2016
$
CASH FLOW FROM OPERATING ACTIVITIES
Cash inows
Cash Sales
24 000
2ECEIPTS FROM $EBTORS
11 0001
'34 2ECEIVED
2 4002
Less Cash Outows
0AYMENTS TO #REDITORS
32 0003
Wages
8 000
Advertising
1 300
0REPAID 2ENT
9 0004
'34 0AID
1 5305
Net Cash Flows from Operations
51 830
(14 430)
CASH FLOW FROM INVESTING ACTIVITIES
Cash Inows
.IL
Less Cash Outows
Ofce Equipment
5 000
Net Cash Flows from Investing Activities
(5 000)
CASH FLOW FROM FINANCING ACTIVITIES
Cash Inows
Capital Contribution
30 000
Loan AXC Bank
10 000
40 000
Less Cash Outows
Drawings
1 000
Net Cash Flows from Financing Activities
39 000
Net Increase (Decrease) in Cash Position
19 570
Add Bank Balance at start (1 March 2016)
Bank Balance at end (31 March 2016)
Nil
19 570
.OTE THE FOLLOWING IN &IGURE
#REDIT 3ALES IS A REVENUE BUT NOT A CASH mOW ONLY THE CASH RECEIVED FROM DEBTORS
IS REPORTED HERE
'34 RECEIVED IS CALCULATED AS OF THE #ASH 3ALES lGURE THAT IS
#ASH 3ALES X '34 '34 2ECEIVED
#REDIT PURCHASES OF STOCK PLUS '34 WILL CREATE A DEBT
TO CREDITORS BUT AT THE END OF -ARCH ONLY WILL REMAIN OWING MEANING
THE DIFFERENCE WILL BE PAID TO CREDITORS THAT IS
393
n 0AYMENTS TO #REDITORS
2EGARDLESS OF HOW MUCH HAS BEEN incurred THE TOTAL CASH paid FOR RENT IS
REPORTED HERE "ECAUSE IT IS PAID in advance IT IS TITLED @0REPAID 2ENT
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CAMBRIDGE VCE ACCOUNTING
394
STUDY TIP
4OTAL '34 PAID IS CALCULATED BY ADDING THE '34 PAID ON ADVERTISING PREPAID RENT
AND OFlCE EQUIPMENT THAT IS
2EADING SKILLS ARE
ESSENTIAL IN BUDGETING
QUESTIONS YOU WILL lND
MOST OF THE ANSWERS IN
THE QUESTION ITSELF IF YOU
LOOK HARD ENOUGH
UNITS 3&4
'34 PAID
)N ADDITION NOTE THAT NOT ALL THE TRANSACTIONS ARE REPORTED IN THE "UDGETED #ASH
&LOW 3TATEMENT BECAUSE NOT ALL INVOLVE CASH )N THIS EXAMPLE #REDIT 3ALES AND CREDIT
PURCHASES AND THE '34 RELATED TO EACH #OST OF 3ALES 3TOCK ,OSS DEPRECIATION OF
OFlCE EQUIPMENT AND DRAWINGS OF STOCK HAVE BEEN EXCLUDED AS THEY ARE NON
CASH
TRANSACTIONS 4HEY MAY AFFECT OTHER BUDGETED REPORTS BUT NOT THE "UDGETED #ASH &LOW
3TATEMENT
Consecutive budgets
4HE PRECEDING BUDGET RELATES ONLY TO ONE MONTH TAKEN IN ISOLATION BUT IT WOULD BE WISE
FOR A BUSINESS TO PREPARE BUDGETS FOR CONSECUTIVE MONTHS TO SHOW THE EFFECT OF MONTHLY
VARIATIONS THAT IS SEPARATE BUDGETS FOR -ARCH !PRIL -AY ETC COULD BE PREPARED AND
PRESENTED SIDE BY SIDE TO SHOW TRENDS IN INmOWS AND OUTmOWS FROM MONTH TO MONTH
3UCH A BUDGET MAY APPEAR AS IS SHOWN IN &IGURE
.OTE HOW THE BALANCE AT THE END OF -ARCH IS THEN TRANSFERRED TO BECOME
THE BALANCE AT THE START OF !PRIL !PRILS CLOSING BALANCE BECOMES THE OPENING
BALANCE FOR -AY AND SO ON
4HIS TYPE OF BUDGET ALLOWS THE OWNER TO IDENTIFY MONTHLY AND EVEN SEASONAL TRENDS
AND CAN BE VERY USEFUL FOR IDENTIFYING when TO UNDERTAKE A PARTICULAR CASH ACTIVITY SUCH
AS THE PURCHASE OF A NON
CURRENT ASSET OR REPAYMENT OF A LOAN
)N GENERAL MORE FREQUENT BUDGETS WILL BE MORE ACCURATE AND THEREFORE MORE USEFUL
AS BENCHMARKS FOR COMPARISON )N ADDITION THEY WILL ALLOW FOR THE EARLIER DETECTION OF
PROBLEMS SO THAT CORRECTIVE ACTION CAN BE TAKEN IN A MORE TIMELY FASHION AND CAN
PERHAPS STOP A SMALL PROBLEM FROM BECOMING LARGE
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
Figure 17.3
BUDGETS
Budgeted Cash Flow Statement: consecutive periods
DENZEL WASHING MACHINES
Budgeted Cash Flow Statement for MarchMay 2016
March
April
May
Cash Sales
24 000
28 000
2ECEIPTS FROM $EBTORS
11 000
15 000
13 000
2 400
2 800
CASH FLOW FROM OPERATING
ACTIVITIES
Cash Inows
'34 2ECEIVED
1 100
45 800
43 800
32 000
36 000
33 000
Wages
8 000
9 000
8 500
Advertising
1 300
1 300
1 300
0REPAID 2ENT
9 000
'34 2EFUND
4OTAL /PERATING )NmOWS
Less Cash Outows
0AYMENTS TO #REDITORS
'34 0AID
4OTAL /PERATING /UTmOWS
Net Cash Flows from Operations
1 530
130
830
51 830
46 430
43 630
(14 430)
(630)
170
CASH FLOW FROM INVESTING
ACTIVITIES
Cash Inows
0ROCEEDS ON 3ALE OF %QUIPMENT
1 600
Less Cash Outows
Ofce Equipment
5 000
(5 000)
Nil
(5 400)
Capital Contribution
30 000
Loan AXC Bank
10 000
4OTAL &INANCING )NmOWS
40 000
.IL
.IL
1 000
1 000
Net Cash Flows from Investing Activities
CASH FLOW FROM FINANCING
ACTIVITIES
Cash Inows
Less Cash Outows
Drawings
1 000
Net Cash Flows from Financing Activities
39 000
(1 000)
(1 000)
Net Increase (Decrease) in Cash Position
19 570
(1 630)
(6 230)
Add Bank Balance at start
Bank Balance at end
Nil
19 570
17 310
19 570
17 310
11 080
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
395
396
CAMBRIDGE VCE ACCOUNTING
UNITS 3&4
REVIEW QUESTIONS 17.3
1 Dene THE FOLLOWING TERMS AS THEY RELATE TO THE "UDGETED #ASH &LOW 3TATEMENT
AND PROVIDE ONE EXAMPLE OF AN INmOW AND ONE EXAMPLE OF AN OUTmOW THAT
WOULD FALL UNDER EACH OF THESE HEADINGS
s /PERATING !CTIVITIES
s )NVESTING !CTIVITIES
s &INANCING !CTIVITIES
2 Explain WHY IT IS IMPORTANT THAT BUDGETED .ET #ASH &LOWS FROM /PERATIONS IS
POSITIVE
3 State TWO ACTIONS THE OWNER COULD TAKE TO
s IMPROVE ESTIMATED /PERATING INmOWS
s REDUCE ESTIMATED /PERATING OUTmOWS
4 State TWO EXPECTED EXPENSES THAT WILL not BE REPORTED IN THE "UDGETED #ASH
&LOW 3TATEMENT
5 Explain WHY IT IS USUAL FOR .ET #ASH &LOWS FROM )NVESTING !CTIVITIES TO BE
NEGATIVE
6 Explain THE POSSIBLE RELATIONSHIP BETWEEN THE CASH mOWS FROM )NVESTING AND
&INANCING ACTIVITIES
7 Explain TWO BENElTS OF PREPARING BUDGETS MORE FREQUENTLY THAN ONCE A YEAR
17.4 USES OF THE BUDGETED CASH FLOW STATEMENT
Planning
4HE "UDGETED #ASH &LOW 3TATEMENT aids planning BY ALLOWING THE OWNER TO PREPARE
IN ADVANCE FOR AN EXPECTED CASH SURPLUS OR CASH DElCIT 3HOULD THE BUDGET PREDICT AN
OVERALL .ET $ECREASE IN #ASH 0OSITION THE OWNER MIGHT
s DEFER THE PURCHASE OF NON CURRENT ASSETS OR USE CREDIT FACILITIES OR A LOAN FOR A
PURCHASE
s DEFER LOAN REPAYMENTS
s TAKE LESS CASH AS DRAWINGS
s MAKE A CASH CAPITAL CONTRIBUTION
s ORGANISE OR EXTEND AN OVERDRAFT FACILITY
3HOULD THE BUDGET PREDICT AN OVERALL .ET )NCREASE IN #ASH 0OSITION THE OWNER MIGHT
USE THE EXTRA CASH TO
s PURCHASE MORENEWER NON CURRENT ASSETS
s INCREASE LOAN REPAYMENTS
s INCREASE CASH DRAWINGS
s EXPAND TRADING ACTIVITIES BY INCREASING ADVERTISING OR EMPLOYING MORE STAFF FOR
EXAMPLE
!LTERNATIVELY A BUSINESS STARTING A PERIOD WITH A BANK OVERDRAFT MAY CHOOSE TO DO
NOTHING AND LET THE EXPECTED CASH SURPLUS BRING ITS BANK BALANCE BACK INTO THE BLACK
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
BUDGETS
397
Decision-making
)N ADDITION THE "UDGETED #ASH &LOW 3TATEMENT aids decision-making BECAUSE IT SETS
A STANDARD BENCHMARK FOR THE ASSESSMENT OF THE lRMS ACTUAL CASH PERFORMANCE "Y
COMPARING BUDGETED AND ACTUAL CASH mOWS THE OWNER CAN IDENTIFY PROBLEMS AREAS AND
THEN ACT TO CORRECT THE SITUATION
3PECIlCALLY THE OWNER COULD ASSESS
s THE EFFECTIVENESS OF ADVERTISING IN GENERATING #ASH 3ALES
s DEBTOR COLLECTION PROCEDURES
s CREDITOR PAYMENT POLICIES
s THE LEVEL OF CASH PAYMENTS FOR EXPENSES
s THE LEVEL OF CASH DRAWINGS
s THE ADEQUACY OF lNANCE FOR THE PURCHASE OF NON
CURRENT ASSETS
REVIEW QUESTIONS 17.4
1
2
3
4
Explain HOW THE "UDGETED #ASH &LOW 3TATEMENT CAN ASSIST PLANNING
State THREE ACTIONS THE OWNER COULD TAKE TO ADDRESS A BUDGETED CASH DECREASE
State THREE ACTIONS THE OWNER COULD TAKE TO UTILISE A BUDGETED CASH INCREASE
Explain HOW THE "UDGETED #ASH &LOW 3TATEMENT CAN ASSIST DECISION
MAKING
17.5 CALCULATING CASH FLOWS
Schedule of Receipts from Debtors
)N THE EXAMPLE IN WE REPORTED 2ECEIPTS FROM $EBTORS IN THE "UDGETED #ASH &LOW
3TATEMENT RATHER THAN #REDIT 3ALES AS WE WERE INTERESTED ONLY IN REPORTING CASH mOWS
4HIS DISTINCTION IS VERY IMPORTANT THE CREDIT SALE AND RECEIPT OF THE CASH MAY EVEN TAKE
PLACE IN DIFFERENT REPORTING PERIODS )N SOME CASES IT MAY BE NECESSARY TO CALCULATE HOW
MUCH WILL BE RECEIVED FROM DEBTORS DURING THE budget PERIOD FROM #REDIT 3ALES MADE
IN previous PERIODS AND IN SOME CASES THE current PERIOD
)NTEGRAL TO THIS TYPE OF CALCULATION IS KNOWLEDGE OF THE HISTORICAL BEHAVIOUR OF
DEBTORS IN MAKING THEIR REPAYMENTS 4HE BUSINESS OWNER NEEDS TO BE ABLE TO ESTIMATE
APPROXIMATELY HOW LONG DEBTORS TAKE TO PAY "ASED ON THE INFORMATION IN THE $EBTORS
,EDGER OWNERS CAN ESTIMATE WHAT PERCENTAGE OF DEBTORS PAY WITHIN A MONTH OF THE SALE
WITHIN TWO MONTHS AND SO ON THEREBY ALLOWING THEM TO CALCULATE THE EXPECTED 2ECEIPTS
FROM $EBTORS FOR THE BUDGET PERIOD 4HIS CALCULATION IS FACILITATED BY THE PREPARATION OF
A 3CHEDULE OF 2ECEIPTS FROM $EBTORS
Facial Attractions sells make-up and other cosmetics, and wants to prepare
A "UDGETED #ASH &LOW 3TATEMENT FOR /CTOBER .OVEMBER AND $ECEMBER
2016. On 30 September 2016, its owner provided the following Sales data:
Actual Sales
Budgeted Sales
July
August
September
October
.OVEMBER
December
Schedule of Receipts
from Debtors
a table used to calculate
how much cash will be
received from debtors
in the budget period as
a consequence of Credit
Sales in the current and
previous periods
EXAMPLE
$21 000
20 000
22 000
19 000
25 000
s 3ALES FIGURES DO NOT INCLUDE '34
s OF 3ALES ARE MADE ON CREDIT ARE MADE ON CASH TERMS
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
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398
CAMBRIDGE VCE ACCOUNTING
UNITS 3&4
)F WE WERE PREPARING A "UDGETED )NCOME 3TATEMENT WE WOULD NOT HAVE TO MAKE
ANY CALCULATIONS AS WE ALREADY HAVE INFORMATION RELATING TO EXPECTED 3ALES 2EVENUE FOR
EACH MONTH (OWEVER IN ORDER TO PREPARE A "UDGETED #ASH &LOW 3TATEMENT WE NEED
TO CALCULATE EXPECTED 2ECEIPTS FROM $EBTORS
&IRST WE MUST CALCULATE HOW MUCH OF THE TOTAL 3ALES lGURE IS #ASH 3ALES AND HOW
MUCH IS MADE ON CREDIT 4HIS IS SHOWN IN &IGURE
Figure 17.4
Schedule of cash and credit sales
Total Sales
Cash Sales
20%
July
21 000
4 200
16 800
August
20 000
4 000
16 000
September
22 000
4 400
October
19 000
3 800
15 200
.OVEMBER
23 000
4 600
18 400
December
25 000
5 000
20 000
Month
Credit Sales
80%
4HE #ASH 3ALES lGURES FOR /CTOBER TO $ECEMBER CAN GO STRAIGHT INTO THE "UDGETED
#ASH &LOW 3TATEMENT AS /PERATING INmOWS AS THEY REPRESENT CASH mOWS IN THE MONTHS
WHEN THE SALE IS MADE #ASH 3ALES FOR *ULY TO 3EPTEMBER ARE OUTSIDE THE BUDGET PERIOD
AND SO ARE EXCLUDED
!S THESE ARE 3ALES '34 WILL ALSO BE RECEIVED AT THE RATE OF OF THE #ASH 3ALES
lGURE 4HE CASH RECEIPTS ARISING FROM #ASH 3ALES FOR /CTOBER TO $ECEMBER WOULD
THUS BE
October
November
December
CASH FLOW FROM OPERATING ACTIVITIES
Cash Inows
Cash Sales
'34 2ECEIVED
3 800
4 600
5 000
380
460
500
(OWEVER WE NEED TO CALCULATE HOW MUCH CASH WILL BE RECEIVED IN /CTOBER TO
$ECEMBER AS A RESULT OF CREDIT SALES IN EARLIER MONTHS )N ORDER TO DO THIS WE MUST
lRST ADD TO OUR CREDIT SALES THE '34 WE WILL CHARGE DEBTORS AS BOTH AMOUNTS MUST BE
COLLECTED FROM DEBTORS
Figure 17.5
Month
Credit Sales and GST
Credit Sales
(excluding GST)
GST charged
(10%)
Credit Sales
(including GST)
July
16 800
1 680
18 480
August
16 000
1 600
17 600
September
19 360
October
15 200
1 520
16 720
.OVEMBER
18 400
1 840
20 240
December
20 000
2 000
22 000
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CHAPTER 17
BUDGETS
399
'IVEN THE TOTAL AMOUNT OWED TO US BY DEBTORS Credit Sales including GST WE CAN
NOW MOVE TO CALCULATING 2ECEIPTS FROM $EBTORS FROM THOSE CREDIT SALES 4HIS REQUIRES
MORE INFORMATION ABOUT THE REPAYMENT PATTERNS OF THE lRMS DEBTORS
EXAMPLE
Additional information
"ASED ON AN ANALYSIS OF THE FIRMS DEBTORS THE OWNER EXPECTS OF
DEBTORS TO PAY IN THE MONTH AFTER THE SALE 4HESE DEBTORS RECEIVE A
DISCOUNT /F THE REMAINDER OF DEBTORS PAY TWO MONTHS AFTER THE
SALE AND PAY IN THE THIRD MONTH AFTER SALE
"ASED ON THIS INFORMATION WE CAN PREPARE A 3CHEDULE OF 2ECEIPTS FROM $EBTORS LIKE
THE ONE SHOWN IN &IGURE
Figure 17.6
STUDY TIP
Schedule of Receipts from Debtors
Month
Credit Sales
(including GST)
October
November
December
July
18 480
August
17 600
10 560
2 640
September
19 360
4 598
11 616
2 904
October
16 720
10 032
.OVEMBER
20 240
December
22 000
Budgeted Receipts from Debtors
17 930
18 227
17 743
4HE MONTHS ACROSS THE TOP OF THE TABLE /CTOBER .OVEMBER $ECEMBER ARE THOSE FOR
WHICH WE ARE PREPARING THE BUDGET 4HE MONTHS DOWN THE LEFT SIDE *ULY TO $ECEMBER
ARE THOSE FOR WHICH WE HAVE 3ALES DATA
)F WE EXAMINE THE AMOUNT OWING FOR CREDIT SALES MADE IN 3EPTEMBER WE CAN SEE
HOW THE CALCULATIONS WERE MADE "ASED ON THE ANALYSIS OF WHEN DEBTORS PAY OF
THE 3EPTEMBER CREDIT SALES lGURE $19 360 INCLUDING '34 LESS THE DISCOUNT WILL BE
COLLECTED IN THE MONTH AFTER THE SALE THAT IS IN /CTOBER
!MOUNT OWING FOR CREDIT SALES INCLUDING '34
X RECEIVED ONE MONTH AFTER SALE
LESS DISCOUNT X
$19 360
242
#ASH RECEIVED FROM DEBTORS IN /CTOBER
$ 4 598
4HE 3CHEDULE OF
2ECEIPTS FROM $EBTORS
IS NOT A BUDGETED
REPORT IT IS SIMPLY A
TECHNIQUE USED TO
CALCULATE 2ECEIPTS FROM
$EBTORS WHICH CAN
THEN BE SHOWN IN THE
"UDGETED #ASH &LOW
3TATEMENT
STUDY TIP
7ITH THE DISCOUNT DONT
JUST MULTIPLY BY
THAT IS LESS
THIS WOULD GIVE THE
DISCOUNT TO ALL DEBTORS
RATHER THAN JUST THOSE
WHO PAY WITHIN ONE
MONTH
! FURTHER OF $19 360 WILL BE COLLECTED TWO MONTHS LATER IN .OVEMBER
AND THE lNAL OF $19 360 WILL BE COLLECTED THREE MONTHS AFTER THE
SALE IN $ECEMBER
4HE SAME PROCESS APPLIES TO THE OTHER MONTHS TO SHOW THAT ALTHOUGH A CREDIT SALE IS
MADE IN ONE MONTH THE CASH MAY BE RECEIVED OVER A NUMBER OF MONTHS
)F WE ADD UP ALL THE lGURES IN THE COLUMNS FOR /CTOBER .OVEMBER AND $ECEMBER
WE CAN CALCULATE ESTIMATED 2ECEIPTS FROM $EBTORS FOR EACH MONTH 4HIS INFORMATION
CAN NOW BE REPORTED IN THE "UDGETED #ASH &LOW 3TATEMENT ALONG WITH THE #ASH 3ALES
lGURES WE HAD ALREADY CALCULATED AS IS SHOWN OVER THE PAGE
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CAMBRIDGE VCE ACCOUNTING
400
UNITS 3&4
FACIAL ATTRACTIONS
Budgeted Cash Flow Statement (extract) for OctoberDecember 2016
CASH FLOW FROM OPERATING ACTIVITIES
Cash Inows
Cash Sales
'34 2ECEIVED
2ECEIPTS FROM $EBTORS
October
November
December
3 800
380
4 600
460
5 000
500
2EMEMBER THAT ALTHOUGH THE CASH RECEIVED FROM DEBTORS INCLUDES SOME '34 IT IS NOT
NECESSARY TO IDENTIFY THIS AMOUNT SEPARATELY AS THE '34 IS ONLY IDENTIlED AT THE POINT OF
SALE ONLY '34 RECEIVED ON #ASH 3ALES MUST BE REPORTED SEPARATELY
Schedule of Payments to Creditors
Schedule of Payments
to Creditors
a table used to calculate
how much cash will be
paid to creditors in the
budget period as a
consequence of credit
purchases in the current
and previous periods
4HIS TECHNIQUE CAN ALSO BE APPLIED TO CALCULATE 0AYMENTS TO #REDITORS WITH CREDIT
PURCHASES SUBSTITUTING FOR CREDIT SALES )N ORDER TO DRAW UP A 3CHEDULE OF 0AYMENTS TO
Creditors WE REQUIRE INFORMATION ON HOW FREQUENTLY CREDITORS ARE PAID SO THAT WE CAN
CALCULATE when AND how much CREDITORS WILL BE PAID DURING THE BUDGET PERIOD
REVIEW QUESTIONS 17.5
1 2EFERRING TO ONE ACCOUNTING PRINCIPLE explain WHY IT MAY BE NECESSARY TO
PREPARE A 3CHEDULE OF 2ECEIPTS FROM $EBTORS WHEN PREPARING A "UDGETED
#ASH &LOW 3TATEMENT
2 Explain THE ROLE OF HISTORICAL DATA IN THE PREPARATION OF A 3CHEDULE OF 2ECEIPTS
FROM $EBTORS
3 Explain WHY 2ECEIPTS FROM $EBTORS MUST BE CALCULATED USING CREDIT SALES
INCLUDING '34
4 Explain WHY THE '34 MUST BE IDENTIlED WHEN #ASH 3ALES ARE SHOWN IN THE
"UDGETED #ASH &LOW 3TATEMENT
5 State ONE REASON WHY THE '34 IS not IDENTIlED WHEN CASH IS RECEIVED FROM A
DEBTOR
17.6 THE BUDGETED INCOME STATEMENT
Budgeted Income
Statement
an accounting report that
shows expected future
revenues and expenses
'IVEN THAT THE MAIN OBJECTIVE OF A TRADING BUSINESS IS TO EARN A PROlT THE OWNER SHOULD
PLAN AHEAD FOR HOW TO ACHIEVE THIS GOAL )N ADDITION THE lRM MUST HAVE SOME TYPE OF
BENCHMARK AGAINST WHICH IT CAN ASSESS ITS TRADING PROlT PERFORMANCE "OTH OF THESE
AIMS ARE MET BY THE PREPARATION OF A "UDGETED )NCOME 3TATEMENT WHICH ATTEMPTS TO
PREDICT REVENUES AND EXPENSES FOR THE BUDGET PERIOD
Cash versus prot
!T THIS POINT IT IS PROBABLY WORTH REMEMBERING THAT CASH AND PROlT ARE DIFFERENT MEASURES
OF PERFORMANCE AND THEREFORE THE ITEMS REPORTED IN THE "UDGETED )NCOME 3TATEMENT
WILL NOT NECESSARILY BE THE SAME AS THOSE REPORTED IN THE "UDGETED #ASH &LOW 3TATEMENT
7HEREAS THE "UDGETED #ASH &LOW 3TATEMENT REPORTS EXPECTED cash inows AND cash
outows OVER THE BUDGET PERIOD THE "UDGETED )NCOME 3TATEMENT REPORTS expected
revenues earned AND expected expenses incurred OVER THE BUDGET PERIOD
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CHAPTER 17
BUDGETS
401
!S SOME CASH ITEMS ARE NOT REVENUES OR EXPENSES THEY WILL BE OMITTED FROM THE
"UDGETED )NCOME 3TATEMENT
Cash inows that are not revenues
Cash outows that are not expenses
'34 RECEIVED
'34 PAID
'34 REFUND
'34 SETTLEMENT
#ASH SALE OF .#!
#ASH PAYMENT FOR .#!TO SUNDRY CREDITOR
Cash capital contribution
Cash drawings
2ECEIPT OF LOAN
2EPAYMENT OF LOAN PRINCIPAL
3TRICTLY SPEAKING CASH SALE FROM AN .#! REPRESENTS REVENUE (OWEVER IT IS ONLY THE OVERALL
PROlT OR LOSS ON THE DISPOSAL THAT IS REPORTED IN THE "UDGETED )NCOME 3TATEMENT
(OWEVER THE "UDGETED )NCOME 3TATEMENT WILL INCLUDE SOME REVENUES AND EXPENSES
THAT ARE NOT REPORTED AS CASH mOWS
Revenues that are not cash inows
Expenses that are not cash outows
Stock gain
Stock Loss
Stock write-down
0ROlT ON DISPOSAL OF .#!
,OSS ON DISPOSAL OF .#!
Bad debts
Depreciation
&INALLY SOME OF THE ITEMS WILL AFFECT BOTH BUDGETS BUT THE AMOUNTS MAY DIFFER
Revenue/expense
Cash inow/cash outow
Credit Sales
2ECEIPTS FROM $EBTORS
Cost of Sales
0AYMENTS FOR STOCK
Other revenue earned
Other revenue received (may also be
TITLED ACCRUED ANDOR PREPAID
Other Expense incurred
Other Expense paid (may also be titled
ACCRUED ANDOR PREPAID
,ETS USE THE INFORMATION THAT WAS USED TO GENERATE THE "UDGETED #ASH &LOW
3TATEMENT IN &IGURE TO ILLUSTRATE HOW THE "UDGETED )NCOME 3TATEMENT WILL APPEAR
BUT THIS TIME WITH THE REVENUES AND EXPENSES HIGHLIGHTED
Denzel Washing Machines will begin trading Operations on 1 March 2016,
and has provided the following estimates for its first month of Operations:
s 4HE OWNER WILL MAKE A CAPITAL CONTRIBUTION OF TO COMMENCE
Operations.
s #ASH 3ALES ARE ESTIMATED TO BE $24 000 PLUS '34
s #REDIT 3ALES ARE ESTIMATED TO BE $17 600 including GST. Of this
amount, $11 000 is expected to be received in March 2016.
s !LL STOCK WILL BE PURCHASED ON CREDIT 0URCHASES FOR -ARCH ARE
EXPECTED TO BE PLUS '34 !T THE END OF -ARCH IT
is anticipated that $6 500 will be owed to creditors.
Anthony Simmons, Richard Hardy 2012
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EXAMPLE
Cambridge University Press
402
CAMBRIDGE VCE ACCOUNTING
UNITS 3&4
s #OST OF 3ALES IS EXPECTED TO BE $20 000 and, based on the experience
of similar firms, Stock Loss is expected to be $300.
s 4HE FOLLOWING EXPENSES WILL BE INCURRED DURING -ARCH
wages
$ 8 000
advertising
1 300 PLUS '34
100
depreciation of office equipment
s 2ENT FOR THE NEXT six months will be paid on 1 March 2016: $9 000 plus
'34
s .EW OFFICE EQUIPMENT WORTH PLUS '34 WILL BE PURCHASED ON
1 March 2016 using cash.
s #ASH DRAWINGS WILL BE $RAWINGS OF STOCK IS EXPECTED TO BE
s /N -ARCH WILL BE BORROWED FROM !8# "ANK TO
purchase a new vehicle. Beginning in April 2016, $500 will be paid off
THE PRINCIPAL EACH MONTH 4HE VEHICLE ITSELF WILL NOT BE PURCHASED UNTIL
April 2016.
4HE "UDGETED )NCOME 3TATEMENT FOR -ARCH IS SHOWN IN &IGURE
Figure 17.7
Budgeted Income Statement
DENZEL WASHING MACHINES
Budgeted Income Statement for March 2016
Revenue
Cash Sales
24 000
Credit Sales
16 0001
40 000
Less Cost of Goods Sold
Cost of Sales
20 000
Gross Prot
20 000
Less Stock Loss
300
Adjusted Gross Prot
19 700
Less Other Expenses
Wages
8 000
Advertising
1 300
Depreciation of Ofce Equipment
100
1 5002
2ENT
Net Prot
10 900
8 800
.OTE THE FOLLOWING IN &IGURE
#REDIT 3ALES OF $17 600 includes GST 4HUS THE AMOUNT OF #REDIT 3ALES REVENUE IS
ONLY THAT IS
$17 600
X
#REDIT 3ALES
0REPAID RENT IS NOT SHOWN IN THIS REPORT AS IT IS THE PURCHASE OF A CURRENT ASSET
)N TERMS OF EXPENSES ONLY ONE MONTH HAS BEEN INCURRED THAT IS
X
MONTHS
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2ENT %XPENSE
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CHAPTER 17
BUDGETS
403
Uses of the Budgeted Income Statement
4HE "UDGETED )NCOME 3TATEMENT aids planning BECAUSE IT INDICATES THE FUTURE
REQUIREMENTS OF THE lRM RELATING TO ISSUES SUCH AS STAFlNG WHICH MAY REQUIRE HIRING OR
lRING STOCK LEVELS OR ADVERTISING CAMPAIGNS
!S A decision-making TOOL THE "UDGETED )NCOME 3TATEMENT PROVIDES A STANDARD
AGAINST WHICH TRADING PERFORMANCE CAN BE MEASURED ALLOWING PROBLEMS TO BE IDENTIlED
AND CORRECTIVE ACTION TAKEN 4HIS BENCHMARK CAN ALSO ACT AS A target OR goal TO MOTIVATE
STAFF AND MANAGEMENT
3PECIlCALLY THE OWNER COULD ASSESS
s THE LEVEL OF SALES AND THE EFFECTIVENESS OF ADVERTISING
s THE MARK UP ACHIEVED
s THE LEVEL OF STOCK LOSS TO ASSESS STOCK MANAGEMENT PROCEDURES
s EXPENSE CONTROL
s STAFF PERFORMANCE
REVIEW QUESTIONS 17.6
1 Explain THE DIFFERENCE BETWEEN A "UDGETED #ASH &LOW 3TATEMENT AND A
"UDGETED )NCOME 3TATEMENT
2 State TWO EXAMPLES OF
s CASH INmOWS THAT ARE NOT REVENUES
s CASH OUTmOWS THAT ARE NOT EXPENSES
3 State TWO EXAMPLES OF
s REVENUES THAT ARE NOT CASH INmOWS
s EXPENSES THAT ARE NOT CASH OUTmOWS
4 Explain HOW A "UDGETED )NCOME 3TATEMENT CAN BE USED TO ASSIST PLANNING
5 Explain HOW A "UDGETED )NCOME 3TATEMENT CAN BE USED TO ASSIST DECISION
MAKING
6 State THREE AREAS OF BUSINESS PERFORMANCE THE OWNER MIGHT ASSESS BY USING
THE "UDGETED )NCOME 3TATEMENT AS A BENCHMARK
17.7 THE BUDGETED BALANCE SHEET
4HE Budgeted Balance Sheet ATTEMPTS TO PREDICT THE lRMS ASSETS LIABILITIES AND OWNERS
EQUITY AT SOME POINT IN THE FUTURE 2EMEMBER THE EXAMPLE FROM EARLIER IN THIS CHAPTER
Denzel Washing Machines will begin trading Operations on 1 March 2016,
and has provided the following estimates for its first month of Operations:
s 4HE OWNER WILL MAKE A CAPITAL CONTRIBUTION OF TO COMMENCE
Operations.
s #ASH 3ALES ARE ESTIMATED TO BE PLUS '34.
s #REDIT 3ALES ARE ESTIMATED TO BE INCLUDING '34. Of this
amount, $11 000 is expected to be received in March 2016.
s !LL STOCK WILL BE PURCHASED ON CREDIT 0URCHASES FOR -ARCH ARE
expected to be $35 000 PLUS '34. At the end of March 2016 it
is anticipated that $6 500 will be owed to creditors.
s #OST OF 3ALES IS EXPECTED TO BE $20 000 and, based on the experience
of similar firms, Stock Loss is expected to be $300.
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Budgeted Balance Sheet
an accounting report that
predicts assets, liabilities
and owners equity at
some point in the future
EXAMPLE
Cambridge University Press
404
CAMBRIDGE VCE ACCOUNTING
UNITS 3&4
s 4HE FOLLOWING EXPENSES WILL BE INCURRED DURING -ARCH
wages
$8 000
advertising
1 300
(PLUS '34
100
depreciation of office equipment
s 2ENT FOR THE NEXT SIX MONTHS WILL BE PAID ON -ARCH plus
'34
s .EW OFFICE EQUIPMENT WORTH PLUS '34 WILL BE PURCHASED
on 1 March 2016 using cash.
s #ASH DRAWINGS WILL BE $RAWINGS OF STOCK IS EXPECTED TO BE $600.
s /N -ARCH WILL BE BORROWED FROM !8# "ANK TO
purchase a new vehicle. Beginning in April 2016, $500 will be paid off
THE PRINCIPAL EACH MONTH 4HE VEHICLE ITSELF WILL NOT BE PURCHASED UNTIL
April 2016.
4HE BUDGETED "ALANCE 3HEET AS AT -ARCH IS SHOWN IN &IGURE
Figure 17.8
Budgeted Balance Sheet
DENZEL WASHING MACHINES
Budgeted Balance Sheet as at 31 March 2016
Current Assets
Bank1
Stock Control
Current Liabilities
Creditors Control
6 500
14 100
Loan AXC Bank
6 000
Debtors Control3
6 600
0REPAID 2ENT4
'34 #LEARING5
1 030
12 500
Non-Current Liabilities
48 800
Non-Current Assets
Loan AXC Bank 6
4 000
Owners Equity
Ofce Equipment
5 000
Less Accumulated
Depreciation
100
Capital Denzel
4 900
.ET 0ROlT
30 000
8 800
38 800
Less Drawings8
Total Assets
53 700
1 600
Total Equities
53 700
.OTE THE FOLLOWING IN &IGURE
"ANK
#ASH BALANCE AT END SEE "UDGETED #ASH &LOW 3TATEMENT
n &IGURE n Bank Balance at end
3TOCK #ONTROL
3EE THE FOLLOWING PAGE
$EBTORS #ONTROL
#REDIT 3ALES INCLUDING LESS 2ECEIPTS FROM
$EBTORS
0REPAID RENT
0REPAID RENT LESS RENT EXPENSE
'34 #LEARING
3EE THE FOLLOWING PAGE
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
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CHAPTER 17
BUDGETS
,OAN n !8# "ANK
2EPAYABLE PER MONTH X #,
REMAINDER .#,
3EE "UDGETED )NCOME 3TATEMENT n &IGURE
.ET 0ROlT
$RAWINGS
#ASH DRAWINGS PLUS DRAWINGS OF STOCK
)T IS WORTH CONSIDERING IN DETAIL HOW TWO OF THESE ITEMS IN THE BUDGETED "ALANCE
3HEET n 3TOCK #ONTROL AND '34 #LEARING n WERE CALCULATED 'IVEN OUR KNOWLEDGE OF
DOUBLE
ENTRY ACCOUNTING WE WILL EXPRESS THE CALCULATION IN THE FORM OF A LEDGER ACCOUNT
Figure 17.9
Reconstructed ledger accounts
Stock Control (A)
Date
March 1
31
Cross-reference
Balance
Creditors Control
Amount
.IL
Date
March 31
35 000
Cross-reference
Cost of Sales
600
Stock Loss
300
35 000
Balance
20 000
Drawings
Balance
April 1
Amount
14 100
35 000
14 100
GST Clearing (A/L)
Date
Cross-reference
March 31 Bank
Creditors Control
Amount
DCate
Cross-reference
1 530
March 1
Balance
3 500
31
.IL
Bank
2 400
Debtors Control
1 600
Balance
1 030
5 030
April 1 Balance
Amount
5 030
1 030
4HE DEBIT BALANCE IN THIS ACCOUNT MEANS '34 #LEARING IS AN ASSET A RESOURCE
CONTROLLED BY THE BUSINESS FROM WHICH FUTURE ECONOMIC BENElTS WILL mOW THE REFUND
OWED TO THE BUSINESS BY THE !4/ 4HIS HAS OCCURRED BECAUSE THE BUSINESS HAS JUST
STARTED SO IT HAS PURCHASED MORE STOCK THAN IT HAS SOLD AND PURCHASED A NUMBER OF
ASSETS SUCH AS OFlCE EQUIPMENT AND PREPAID RENT 4HUS THE '34 ON ITS PURCHASES
IS greater THAN THE '34 ON ITS SALES
Uses of the Budgeted Balance Sheet
4HE "UDGETED "ALANCE 3HEET CAN BE USED AS A planning DOCUMENT "Y DETAILING THE
EXPECTED CARRYING VALUE OF NON CURRENT ASSETS AT SOME TIME IN THE FUTURE IT HELPS THE
OWNER PREPARE FOR THEIR REPLACEMENT 7HEN USED IN CONJUNCTION WITH THE "UDGETED
#ASH &LOW 3TATEMENT IT CAN ALSO BE USED TO PLAN FOR THE REPAYMENT OF LOANS AND TO SET
THE LEVEL FOR DRAWINGS FOR THE COMING PERIOD
)N ADDITION IT CAN assist decision-making BY SETTING A BENCHMARK FOR INDICATORS THAT
ASSESS LIQUIDITY AND STABILITY 3PECIlCALLY IT WILL ALLOW THE OWNER TO CALCULATE THE "UDGETED
7ORKING #APITAL 2ATIO WHICH CAN BE USED TO ASSESS LIQUIDITY AND THE $EBT 2ATIO WHICH
CAN BE USED TO ASSESS STABILITY 4HESE RATIOS ARE COVERED IN DETAIL IN #HAPTER
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405
CAMBRIDGE VCE ACCOUNTING
406
UNITS 3&4
REVIEW QUESTIONS 17.7
1 State THREE ITEMS REPORTED IN THE "UDGETED "ALANCE 3HEET THAT ARE AFFECTED
BY THE TRANSACTIONS REPORTED IN THE
s "UDGETED #ASH &LOW 3TATEMENT
s "UDGETED )NCOME 3TATEMENT
2 Explain HOW THE "UDGETED "ALANCE 3HEET CAN BE USED TO ASSIST PLANNING
3 Explain HOW THE "UDGETED "ALANCE 3HEET CAN BE USED TO ASSIST DECISION
MAKING
STUDY TIP
4O SELECT WHICH
ACCOUNT TO RECONSTRUCT
THINK OF THE TRANSACTION
THAT IS MISSING IT
WILL APPEAR IN TWO
LEDGER ACCOUNTS 4HEN
CHOOSE THE ACCOUNT
FOR WHICH YOU HAVE THE
BEST INFORMATION
EXAMPLE
17.8 ACCOUNT RECONSTRUCTION
4HE PRECEDING EXAMPLE ILLUSTRATED HOW LEDGER ACCOUNTS CAN BE USED TO CALCULATE CLOSING
BALANCES FOR THE "UDGETED "ALANCE 3HEET 4HIS IS NOT THE ONLY USE OF LEDGER ACCOUNTS IN
THE BUDGETING PROCESS )F WE ALREADY KNOW THE CLOSING BALANCE WE CAN WORK BACKWARDS
TO CALCULATE OTHER lGURES THAT MAY BE NECESSARY TO COMPLETE THE "UDGETED #ASH &LOW
3TATEMENT OR THE "UDGETED )NCOME 3TATEMENT
7HERE ONLY SOME INFORMATION IS KNOWN WE CAN USE OUR KNOWLEDGE OF LEDGER ACCOUNTS
AND DOUBLE ENTRY ACCOUNTING TO CALCULATE MISSING OR UNKNOWN lGURES BY RECONSTRUCTING
THE RELEVANT LEDGER ACCOUNT 2ECONSTRUCTING A LEDGER ACCOUNT INVOLVES THREE STEPS
Identify THE ENTRIES WE WOULD EXPECT TO SEE IN A PARTICULAR LEDGER ACCOUNT
Match THESE ENTRIES WITH lGURES THAT ARE KNOWN
Complete THE LEDGER ACCOUNT TO CALCULATE THE lGURES THAT ARE NOT KNOWN
On 1 July 2015, Kings Sportswear had debtors of $12 000. During
THE MONTH OF *ULY #REDIT 3ALES WERE INCLUDING '34 AND
3ALES 2ETURNS WERE PLUS '34 $ISCOUNT %XPENSE AMOUNTED TO
$400. On 16 July 2016, a Bad Debt for $900 was written off.
At 31 July 2016, debtors owed $15 000.
4HE DATA ABOVE IS SUFlCIENT TO PREPARE THE "UDGETED )NCOME 3TATEMENT AS #REDIT
3ALES IS KNOWN AND THE "UDGETED "ALANCE 3HEET CAN BE PREPARED AS $EBTORS
AT THE END IS KNOWN (OWEVER THE "UDGETED #ASH &LOW 3TATEMENT cannot BE
PREPARED AS 2ECEIPTS FROM $EBTORS IS unknown 7E DO NOT HAVE SUFlCIENT INFORMATION
TO PREPARE A 3CHEDULE OF 2ECEIPTS FROM $EBTORS BUT WE CAN RECONSTRUCT THE $EBTORS
#ONTROL ACCOUNT
Step 1: identify the entries we would expect to see
)NCLUDING EVERY TRANSACTION THIS COURSE HAS COVERED SO FAR A COMPLETE $EBTORS #ONTROL
ACCOUNT EXCLUDING AMOUNTS WOULD SHOW
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
Figure 17.10
BUDGETS
407
Debtors Control template
Debtors Control (A)
Date
Cross-reference
July 1
31
Balance
3ALES'34 #LEARING
Aug. 1
Amount
Date
Cross-reference
July 31
Bank/
Discount Expense
3ALES 2ETURNS'34 #LEARING
Bad Debts
Balance
Amount
STUDY TIP
Balance
+EEP IN MIND THAT ALTHOUGH WE ARE CALCULATING 2ECEIPTS FROM $EBTORS IT WILL BE
IDENTIlED IN THE $EBTORS #ONTROL ACCOUNT BY THE CROSS
REFERENCE @"ANK !LSO NOTE THAT
THE LINE @"ANK$ISCOUNT %XPENSE HAS BEEN SPLIT ACROSS TWO LINES 4HIS IS USUALLY WRITTEN
ON ONE LINE BECAUSE IT IS POSTED FROM THE TOTAL OF THE $EBTORS #ONTROL COLUMN IN THE
#ASH 2ECEIPTS *OURNAL (OWEVER THIS ONE AMOUNT REPRESENTS THE TOTAL BY WHICH DEBTORS
WILL DECREASE THAT IS CASH RECEIVED PLUS ANY DISCOUNT EXPENSE &OR THE PURPOSE OF
THE "UDGETED #ASH &LOW 3TATEMENT WE ARE ONLY INTERESTED IN THE CASH RECEIVED FROM
DEBTORS "ANK NOT THE DISCOUNT EXPENSE SO THE TWO AMOUNTS HAVE BEEN IDENTIlED ON
SEPARATE LINES IN THE LEDGER ACCOUNT
$EVISE A CODE TO
REMEMBER THE NUMBER
OF ENTRIES IN EACH
ACCOUNT $EBTORS
#ONTROL HAS TWO ON THE
DEBIT SIDE AND FOUR
ON THE CREDIT SIDE &OR
EXAMPLE YOU COULD CALL
IT @THE BY ACCOUNT
Step 2: match these entries with gures that are known
!FTER ENTERING THE INFORMATION THAT IS KNOWN THE $EBTORS #ONTROL ACCOUNT WOULD SHOW
Debtors Control (A)
Date
Cross-reference
July 1
31
Amount
Date
Balance
12 000
July 31
3ALES'34 #LEARING
88 000
Cross-reference
Amount
Bank/
Discount Expense
400
1 320
3ALES 2ETURNS'34 #LEARING
Bad Debts
Balance
Aug. 1
Balance
900
15 000
15 000
4HE 3ALES RETURNS lGURE WAS PROVIDED AS plus '34 MEANING THE TOTAL lGURE
TO BE RECORDED HERE IS PLUS '34
Step 3: complete the ledger account to calculate the missing gure
"Y COMPLETING THE ACCOUNT WE CAN DETERMINE THE MISSING lGURE WHICH IN THIS CASE IS
2ECEIPTS FROM $EBTORS
Debtors Control (A)
Date
Cross-reference
Amount
Date
July 1
Balance
12 000
July 31
3ALES'34 #LEARING
88 000
31
Cross-reference
Bank/
Discount Expense
3ALES 2ETURNS'34 #LEARING
Bad Debts
Balance
100 000
Aug. 1
Balance
Amount
82 380
400
1 320
900
15 000
100 000
15 000
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CAMBRIDGE VCE ACCOUNTING
408
STUDY TIP
4HIS ACCOUNT IS ALMOST
THE OPPOSITE OF DEBTORS
CONTROL BUT IT HAS NO
BAD DEBTS ENTRY
UNITS 3&4
4HE TOTAL ON THE DEBIT SIDE EQUALS SO THIS MUST ALSO BE THE TOTAL ON THE
CREDIT SIDE )N ORDER TO MAKE THE CREDIT ENTRIES TOTAL 2ECEIPTS FROM $EBTORS
MUST BE WHICH CAN NOW BE REPORTED IN THE "UDGETED #ASH &LOW 3TATEMENT
4HE SAME APPROACH COULD BE USED TO RECONSTRUCT OTHER LEDGER ACCOUNTS
Figure 17.11
Creditors Control template
Creditors Control (L)
Date
Cross-reference
Amount
Bank/
Date
Cross-reference
Start
Balance
Amount
$ISCOUNT 2EVENUE
3TOCK #ONTROL'34
Clearing
End
3TOCK #ONTROL'34
Clearing
Balance
Balance
)N THE #REDITORS #ONTROL ACCOUNT THE 3TOCK #ONTROL'34 #LEARING ENTRY ON THE CREDIT
SIDE IS CREDIT PURCHASES THE SAME ENTRY ON THE DEBIT SIDE IS PURCHASE RETURNS
Figure 17.12
Stock Control template
Stock Control (A)
Date
Cross-reference
Start
Balance
Creditors Control
Amount $
Date
Cross reference
Cost of Sales
Amount $
Cost of Sales5
Bank2
Cost of Sales6
Cost of Sales3
Creditors Control
Advertising
Drawings
Stock Write-down
3TOCK 'AIN
End
3TOCK ,OSS
Balance
Balance
'IVEN THE NUMBER OF ENTRIES IN THE 3TOCK #ONTROL ACCOUNT IT IS WORTH CLARIFYING A FEW
Debit side
1
2
3
Credit purchases
Cash purchases
3ALES RETURNS COST PRICE
Credit side
4
5
6
#ASH 3ALES COST PRICE
#REDIT 3ALES COST PRICE
0REPAID 3ALES COST PRICE
0URCHASE RETURNS
3TOCK LOSS or stock gain will be recorded, but not both
.OTE THAT ALTHOUGH #OST OF 3ALES MAY INVOLVE THREE ENTRIES IN THE 3TOCK #ONTROL
ACCOUNT IT WOULD ONLY BE reported AS A SINGLE lGURE IN THE "UDGETED )NCOME 3TATEMENT
AND HENCE MAY IN SOME CASES BE PROVIDED AS ONLY ONE lGURE .OTE ALSO THE LINKS
BETWEEN THE #REDITORS #ONTROL AND 3TOCK #ONTROL ACCOUNTS RELATING TO CREDIT PURCHASES
AND PURCHASE RETURNS
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
Figure 17.13
BUDGETS
GST Clearing template
GST Clearing (A/L)
Date
Cross-reference
Bank
Amount
Date
Cross-reference
Start
Balance
Bank
Bank6
Creditors Control3
Debtors Control
Debtors Control4
Creditors Control8
Amount
Sundry Creditor5
End
Balance
Balance
4HE ENTRIES IN THE '34 #LEARING ACCOUNT ARE
Debit side
1
2
3
4
5
Credit side
6
8
'34 SETTLEMENT
'34 ON CASH PURCHASES
'34 ON #REDIT 0URCHASES
'34 ON 3ALES 2ETURNS
'34 ON CREDIT PURCHASE OF .#!
'34 ON #ASH 3ALES
'34 ON #REDIT 3ALES
'34 ON PURCHASE RETURNS
4HIS EXAMPLE ASSUMES A CREDIT BALANCE '34 LIABILITY TO BEGIN WITH SO A '34
SETTLEMENT IS ALSO LIKELY IN THE CASE OF A DEBIT BALANCE '34 ASSET A '34 REFUND WOULD
BE EXPECTED )N TERMS OF THE "UDGETED #ASH &LOW 3TATEMENT ONLY THE THREE BANK ENTRIES
'34 SETTLEMENT '34 ON CASH PURCHASES AND '34 ON #ASH 3ALES WOULD BE REPORTED
Figure 17.14
Capital template
Capital (OE)
Date
Cross-reference
Amount $
Drawings
End
Date
Cross-reference
Start
Balance
0, 3UMMARY
Bank
Balance
.#!
Amount $
0, 3UMMARY
Balance
4HE CROSS
REFERENCE @0, 3UMMARY REFERS TO THE .ET 0ROlT OR .ET ,OSS FOR THE PERIOD
SO OBVIOUSLY ONLY ONE OF THESE ENTRIES WILL APPEAR AT ANY ONE TIME )F A PROlT IS GENERATED
IT WILL APPEAR ON THE CREDIT SIDE IF A LOSS IS INCURRED IT WILL APPEAR ON THE DEBIT SIDE
Figure 17.15
Disposal of NCA template
Disposal of NCA
Date
Cross-reference
Amount $
Date
Cross-reference
.#!
!CC $EP OF .#!
0ROlT ON $ISP OF .#!
Bank or Sundry Creditor
Amount $
,OSS ON $ISP OF .#!
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
409
CAMBRIDGE VCE ACCOUNTING
410
STUDY TIP
)F YOU ONLY KNOW
TWO OF THE BIG FOUR
lGURES SEE IF THERE IS
ENOUGH INFORMATION TO
RECONSTRUCT A RELATED
ACCOUNT FOR EXAMPLE
3TOCK #ONTROL AND
#REDITORS #ONTROL ARE
LINKED IT MAY ALLOW
YOU TO CALCULATE THE
THIRD lGURE SO YOU
CAN RECONSTRUCT THE
ORIGINAL ACCOUNT
UNITS 3&4
4HIS LIST IS BY NO MEANS EXHAUSTIVE ANY LEDGER ACCOUNT COULD BE RECONSTRUCTED TO
CALCULATE A MISSING lGURE FOR ANY OF THE THREE GENERAL
PURPOSE BUDGETS
4HE ONLY RESTRICTION IS WE NEED TO KNOW THREE OF THE @BIG FOUR PIECES OF INFORMATION
&OR DEBTORS AND CREDITORS THIS MEANS AT LEAST THREE OF
s OPENING BALANCE
s CLOSING BALANCE
s #REDIT 3ALES#REDIT 0URCHASES
s 2ECEIPTS FROM $EBTORS0AYMENTS TO #REDITORS
s
s
s
s
&OR STOCK IT MEANS THREE OF
OPENING BALANCE
CLOSING BALANCE
#OST OF 3ALES
PURCHASES CASH OR CREDIT
)F WE KNOW ONLY ONE OR TWO OF THE BIG FOUR WE HAVE INSUFlCIENT INFORMATION TO
RECONSTRUCT THE ACCOUNT
REVIEW QUESTIONS 17.8
1 State THE PURPOSE OF RECONSTRUCTING A LEDGER ACCOUNT
2 List THE THREE STEPS INVOLVED IN RECONSTRUCTING A LEDGER ACCOUNT
3 Explain WHEN IT WOULD BE MORE APPROPRIATE TO RECONSTRUCT THE $EBTORS #ONTROL
ACCOUNT RATHER THAN PREPARE A 3CHEDULE OF 2ECEIPTS FROM $EBTORS
4 Show THE TEMPLATES FOR THE FOLLOWING LEDGER ACCOUNTS
s $EBTORS #ONTROL
s '34 #LEARING
s #REDITORS #ONTROL
s #APITAL
s 3TOCK #ONTROL
s $ISPOSAL OF .#!
17.9 VARIANCE REPORTS: CASH AND PROFIT
variance report
an accounting report
that compares actual
and budgeted gures,
highlighting variances,
so that problems can be
identied and corrective
action taken
! NUMBER OF TIMES IN THIS CHAPTER WE HAVE NOTED THE BENElT OF BUDGETS IN TERMS
OF PROVIDING A BENCHMARK FOR THE ASSESSMENT OF ACTUAL PERFORMANCE "Y COMPARING
ACTUAL AND BUDGETED lGURES SIGNIlCANT DIFFERENCES AND PROBLEMS IN PARTICULAR CAN
BE IDENTIlED ALLOWING THE OWNER TO MAKE DECISIONS TO IMPROVE THE lRMS PERFORMANCE
4HIS COMPARISON IS FACILITATED BY THE PREPARATION OF A variance report
! VARIANCE REPORT COMPARES ACTUAL AND BUDGETED lGURES HIGHLIGHTING ANY SIGNIlCANT
DIFFERENCES WHICH ARE KNOWN AS VARIANCES SO THAT PROBLEMS CAN BE IDENTIlED AND
CORRECTED )T IS PREPARED ONCE THE lGURES ARE AVAILABLE BUT BEFORE THE NEXT BUDGET
)N THIS COURSE WE WILL PREPARE TWO VARIANCE REPORTS
s #ASH "UDGET 6ARIANCE 2EPORT
s )NCOME 3TATEMENT 6ARIANCE 2EPORT
Cash Budget Variance Report
Cash Budget
Variance Report
an accounting report
that compares actual and
budgeted cash ows,
highlighting variances
! #ASH "UDGET 6ARIANCE 2EPORT COMPARES ACTUAL AND BUDGETED CASH mOWS )N
APPEARANCE IT IS VERY SIMILAR TO A "UDGETED #ASH &LOW 3TATEMENT BUT IS HAS ADDITIONAL
COLUMNS FOR ACTUAL lGURES AND THE CALCULATION OF THE VARIANCE
&IGURE SHOWS THE #ASH "UDGET 6ARIANCE 2EPORT FOR $ENZEL 7ASHING -ACHINES
FOR -ARCH
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
Figure 17.16
BUDGETS
411
Cash Budget Variance Report
DENZEL WASHING MACHINES
STUDY TIP
Cash Budget Variance Report for March 2016
Budget
Actual
Variance
F/U
Cash Sales
24 000
29 000
5 000
2ECEIPTS FROM $EBTORS
11 000
8 000
3 000
2 400
2 900
500
39 900
2 500
32 000
30 000
2 000
Wages
8 000
8 600
600
Advertising
1 300
1 100
200
0REPAID 2ENT
9 000
9 000
'34 0AID
1 530
1 610
80
51 830
50 310
1 520
(14 430)
(10 410)
4 020
CASH FLOW FROM OPERATING ACTIVITIES
Cash Inows
'34 2ECEIVED
4OTAL /PERATING )NmOWS
6ARIANCE REPORTS ARE ALSO
KNOWN AS PERFORMANCE
REPORTS AS THEY ASSESS
THE lRMS PERFORMANCE
IN MEETING ITS BUDGET
Less Cash Outows
0AYMENTS TO #REDITORS
4OTAL /PERATING /UTmOWS
Net Cash Flows from Operations
CASH FLOW FROM INVESTING ACTIVITIES
Cash Inows
.IL
Less Cash Outows
Ofce Equipment
Net Cash Flows from Investing Activities
5 000
5 000
(5 000)
(5 000)
CASH FLOW FROM FINANCING ACTIVITIES
Cash Inows
Capital Contribution
30 000
30 000
Loan AXC Bank
10 000
11 000
1 000
4OTAL &INANCING )NmOWS
40 000
41 000
1 000
1 000
1 200
200
Net Cash Flows from Financing Activities
39 000
39 800
800
Net Increase (Decrease) in Cash Position
19 570
24 390
4 820
Nil
Nil
19 570
24 390
4 820
STUDY TIP
Less Cash Outows
Drawings
add Bank Balance at start
Bank Balance at end
! variance IS SIMPLY THE DIFFERENCE BETWEEN THE BUDGETED lGURE AND THE ACTUAL
lGURE 7HETHER IT IS FAVOURABLE OR UNFAVOURABLE DEPENDS IN THE #ASH "UDGET 6ARIANCE
2EPORT ON ITS EFFECT ON CASH ! VARIANCE IS FAVOURABLE & IF IT MEANS CASH WILL BE HIGHER
THAN EXPECTED IN THE BUDGET A VARIANCE IS UNFAVOURABLE 5 IF IT MEANS CASH WILL BE LOWER
THAN EXPECTED IN THE BUDGET
.OTE THAT IN OUR EXAMPLE THE VARIANCE IN THE ,OAN n !8# "ANK IS REPORTED AS
FAVOURABLE BECAUSE CASH WILL INCREASE MORE THAN EXPECTED 4HE FACT THAT THE LIABILITIES
WILL ALSO INCREASE DOES NOT AFFECT ITS CLASSIlCATION IN THE #ASH "UDGET 6ARIANCE 2EPORT
3IMILARLY 0AYMENTS TO #REDITORS IS CLASSIlED AS FAVOURABLE EVEN THOUGH IT COULD MEAN
THE BALANCE OWED TO CREDITORS IS HIGHER THAN EXPECTED
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
)F THERE IS NO VARIANCE
AT ALL THEN IT IS
NEITHER FAVOURABLE NOR
UNFAVOURABLE
variance
the difference between
an actual gure and
a budgeted gure,
expressed as favourable
or unfavourable
Cambridge University Press
CAMBRIDGE VCE ACCOUNTING
412
UNITS 3&4
Uses of the Cash Budget Variance Report
STUDY TIP
)T DOESNT REALLY MATTER
WHETHER YOU SUBTRACT
BUDGETED lGURES
FROM ACTUAL OR THE
OTHER WAY AROUND 4HE
IMPORTANT THING IS TO
IDENTIFY THE VARIANCE
CORRECTLY AS favourable
OR unfavourable
)T IS POSSIBLE THAT THE VARIANCES REVEALED IN THE #ASH "UDGET 6ARIANCE 2EPORT ARE CAUSED
SIMPLY BY POOR BUDGETING (OWEVER THIS DOES NOT MEAN THE REPORT IS USELESS IT SHOULD
BE USED IN planning THE NEXT BUDGET SO THAT IT IS MORE ACCURATE
!SSUMING THE VARIANCES ARE NOT CAUSED BY POOR ESTIMATES THEN THE #ASH "UDGET
6ARIANCE 2EPORT IS A VALUABLE aid to decision-making 4HE UNFAVOURABLE VARIANCES
SHOULD BE INVESTIGATED AND THEIR CAUSE IDENTIlED 4HIS WILL ALLOW THE OWNER TO TAKE
CORRECTIVE ACTION )N OUR EXAMPLE $ENZEL 7ASHING -ACHINES MAY BE CONCERNED AT THE
UNFAVOURABLE VARIANCE IN 2ECEIPTS FROM $EBTORS DOES IT INDICATE A DECLINE IN #REDIT
3ALES POOR COLLECTION POLICIES OR SOMETHING ELSE
7HEN USING THE REPORT IN THIS WAY IT IS ALSO IMPORTANT TO CONSIDER THE LINKS BETWEEN
ITEMS &OR INSTANCE AN UNFAVOURABLE VARIANCE IN !DVERTISING MAY ACTUALLY GENERATE A
FAVOURABLE VARIANCE IN #ASH 3ALES BUT A CORRESPONDING UNFAVOURABLE VARIANCE IN 7AGES
Income Statement Variance Report
Income Statement
Variance Report
an accounting report
that compares actual
and budged revenues
and expenses, and
highlights variations
)N THE SAME WAY THAT A #ASH "UDGET 6ARIANCE 2EPORT COMPARES ACTUAL AND BUDGETED
CASH mOWS AN )NCOME 3TATEMENT 6ARIANCE 2EPORT CAN BE PREPARED TO COMPARE ACTUAL
AND BUDGETED REVENUES AND EXPENSES
6ARIANCES IN THIS REPORT ARE CLASSIlED AS FAVOURABLE OR UNFAVOURABLE DEPENDING ON
THEIR EFFECT ON PROlT )N THE )NCOME 3TATEMENT 6ARIANCE 2EPORT A VARIANCE IS FAVOURABLE
& IF IT MEANS PROlT WILL BE HIGHER THAN EXPECTED IN THE BUDGET A VARIANCE IS UNFAVOURABLE
5 IF IT MEANS PROlT WILL BE LOWER THAN EXPECTED IN THE BUDGET
Figure 17.17
Income Statement Variance Report
DENZEL WASHING MACHINES
Income Statement Variance Report for March 2016
Budget
Actual
Variance
F/U
Revenue
Cash Sales
24 000
29 000
5 000
Credit Sales
16 000
14 000
2 000
4OTAL 2EVENUE
40 000
43 000
3 000
Cost of Sales
20 000
19 000
1 000
Gross Prot
20 000
24 000
4 000
300
900
600
19 700
23 100
3 400
Wages
8 000
8 600
600
Advertising
1 300
1 100
200
100
100
1 500
1 500
10 900
11 300
400
8 800
11 800
3 000
Less Cost of Goods Sold
Less Stock Loss
Adjusted Gross Prot
Less Other Expenses
Depreciation of Ofce Equipment
2ENT
4OTAL %XPENSES
Net Prot
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
BUDGETS
Uses of the Income Statement Variance Report
4HE )NCOME 3TATEMENT 6ARIANCE 2EPORT CAN BE USED FOR EXACTLY THE SAME PURPOSES AS
THE #ASH "UDGET 6ARIANCE 2EPORT AS A planning DOCUMENT AND TO aid decision-making
4HE PRECEDING REPORT IDENTIlES THAT 3ALES OVERALL HAS INCREASED SO THIS MAY EXPLAIN THE
UNFAVOURABLE VARIANCES IN #OST OF 3ALES AND 7AGES
4HE UNFAVOURABLE VARIANCE IN 3TOCK ,OSS IS PERHAPS MORE PROBLEMATIC IT MAY BE
CAUSED BY POOR STOCK MANAGEMENT PROCEDURES WHICH MAY NEED TO BE IMPROVED
7ITHOUT THE BUDGET PROVIDING THE BENCHMARK AND THE VARIANCE REPORT MAKING THE
COMPARISON THIS PROBLEM MAY NOT HAVE BEEN IDENTIlED
REVIEW QUESTIONS 17.9
1 State WHAT INFORMATION IS SHOWN IN A
s #ASH "UDGET 6ARIANCE 2EPORT
s )NCOME 3TATEMENT 6ARIANCE 2EPORT
2 Dene THE TERM @VARIANCE
3 Explain WHEN A VARIANCE WOULD BE CONSIDERED TO BE FAVOURABLE IF REPORTED IN
THE
s #ASH "UDGET 6ARIANCE 2EPORT
s )NCOME 3TATEMENT 6ARIANCE 2EPORT
4 Explain HOW A VARIANCE REPORT CAN BE USED TO ASSIST PLANNING
5 Explain HOW A VARIANCE REPORT CAN BE USED TO ASSIST DECISION
MAKING
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
413
CAMBRIDGE VCE ACCOUNTING
414
UNITS 3&4
WHERE HAVE WE BEEN?
s "UDGETING IS THE PROCESS OF PREPARING REPORTS THAT ESTIMATE OR PREDICT THE lNANCIAL
CONSEQUENCES OF LIKELY FUTURE TRANSACTIONS
s "UDGETS ASSIST PLANNING BY PREDICTING WHAT IS LIKELY TO OCCUR IN THE FUTURE AND AID
DECISION MAKING BY PROVIDING A BENCHMARK OR YARDSTICK A STANDARD AGAINST WHICH
ACTUAL PERFORMANCE CAN BE MEASURED
s "UDGETED CASH AND BUDGETED PROlT ARE NOT NECESSARILY THE SAME
s &IGURES CAN BE CALCULATED BY PREPARING 3CHEDULES OF 2ECEIPTS FROM $EBTORS
0AYMENTS TO #REDITORS OR BY RECONSTRUCTING LEDGER ACCOUNTS
s 6ARIANCE REPORTS COMPARE ACTUAL AND BUDGETED lGURES HIGHLIGHTING VARIANCES SO
THAT PROBLEMS CAN BE IDENTIlED AND CORRECTED
s ! VARIANCE IS THE DIFFERENCE BETWEEN THE BUDGETED lGURE AND THE ACTUAL lGURE AND
CLASSIlED AS FAVOURABLE OR UNFAVOURABLE DEPENDING ON ITS EFFECT ON BANK OR PROlT
EXERCISE 17.1
CASH BUDGET
EXERCISES
W B
page 370
/N *ULY 4OP (ATS HAD IN ITS BANK ACCOUNT )T HAS PROVIDED THE FOLLOWING
LIST OF EXPECTED TRANSACTIONS FOR *ULY
s #ASH 3ALES ARE EXPECTED TO BE PLUS '34 #REDIT 3ALES ARE EXPECTED TO BE
PLUS '34 BUT ONLY IS EXPECTED TO BE COLLECTED IN *ULY
s !LL STOCK IS SOLD AT A MARK
UP
s #ASH PURCHASES OF STOCK WILL BE PLUS '34
s $RAWINGS WILL CONSIST OF CASH AND WORTH OF STOCK
s 4HE FOLLOWING EXPENSES WILL BE PAID
n ADVERTISING
PLUS '34
n WAGES
n INTEREST
s WAGES WILL BE OWING AT THE END OF *ULY
s 9EARLY RENT WILL BE PAID ON *ULY COSTING PLUS '34
s 4HE MONTHLY LOAN REPAYMENT OF WILL BE MADE ON *ULY
s .EW SHOP lTTINGS WORTH INCLUDING '34 WILL BE PURCHASED FOR CASH FROM &ITTS
"EST
Required
a Calculate BUDGETED '34 PAID FOR *ULY
b Prepare A "UDGETED #ASH &LOW 3TATEMENT FOR 4OP (ATS FOR *ULY
c Suggest TWO ACTIONS THE OWNER MAY TAKE TO PLAN FOR THE OUTCOME PREDICTED IN THE
"UDGETED #ASH &LOW 3TATEMENT
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
EXERCISE 17.2
CASH BUDGET: CONSECUTIVE PERIODS
W B
BUDGETS
page 372
,OCKHARDT ,OCKS HAS PROVIDED THE FOLLOWING INFORMATION REGARDING ITS EXPECTED ACTIVITIES
FOR *ANUARY TO -ARCH
s !S AT *ANUARY THE BUSINESS HAD IN THE BANK
s 3ALES ARE MADE ON CASH
ONLY TERMS AND ARE BUDGETED TO BE IN *ANUARY
IN &EBRUARY AND IN -ARCH '34 WILL ALSO BE RECEIVED ON THESE
AMOUNTS
s 3TOCK IS PURCHASED ON CREDIT WITH CREDITORS PAID THE MONTH FOLLOWING PURCHASE
#REDIT PURCHASES FOR $ECEMBER WERE BUT ARE EXPECTED TO RISE TO
IN *ANUARY AND IN &EBRUARY AND -ARCH '34 WILL ALSO BE OWING ON
THESE AMOUNTS
s 4HE FOLLOWING EXPENSES WILL BE PAID EACH MONTH
n WAGES
n ADVERTISING
PLUS '34
n INTEREST
s 2ENT FOR THE NEXT SIX MONTHS WILL BE PAID DURING *ANUARY n INCLUSIVE OF '34
s )N *ANUARY THE BUSINESS WILL SELL AN OLD VEHICLE FOR CASH AND IN &EBRUARY
WILL PAY CASH FOR A NEW VEHICLE WHICH WILL COST PLUS '34
s ! '34 SETTLEMENT IS DUE IN *ANUARY n
s -ONTHLY CASH DRAWINGS WILL BE
s ! REPAYMENT ON THE PRINCIPAL OF A LOAN IS DUE ON *ANUARY n
s 4HE OWNER PLANS TO CONTRIBUTE CASH AND SOME OFlCE EQUIPMENT WORTH
IN -ARCH
Required
a Calculate BUDGETED '34 PAID FOR *ANUARY &EBRUARY AND -ARCH
b Prepare A "UDGETED #ASH &LOW 3TATEMENT FOR ,OCKHARDT ,OCKS FOR *ANUARY &EBRUARY
AND -ARCH
c Suggest TWO ACTIONS THE OWNER MIGHT TAKE TO ADDRESS ANY PROBLEMS REVEALED BY
YOUR ANSWER TO PART @B
d Explain ONE BENElT OF PREPARING A "UDGETED #ASH &LOW 3TATEMENT FOR CONSECUTIVE
PERIODS
EXERCISE 17.3
SCHEDULE OF RECEIPTS FROM DEBTORS
W B
page 375
"ATS @N "ALLS HAS PROVIDED THE FOLLOWING BUDGETED INFORMATION RELATING TO ITS CREDIT
SALES DURING
Month
Credit Sales
!UGUST ACTUAL
8 000
3EPTEMBER ACTUAL
9 000
/CTOBER BUDGETED
10 000
.OVEMBER BUDGETED
11 000
$ECEMBER BUDGETED
12 000
'34 WILL ALSO BE CHARGED ON THESE AMOUNTS )T IS EXPECTED THAT OF DEBTORS WILL
PAY IN THE MONTH FOLLOWING THE SALE WHILE THE REMAINING WILL PAY IN THE SECOND
MONTH
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
415
416
CAMBRIDGE VCE ACCOUNTING
UNITS 3&4
Required
a Suggest ONE REASON FOR THE TREND IN 3ALES FROM !UGUST TO $ECEMBER
b Prepare A 3CHEDULE OF 2ECEIPTS FROM $EBTORS FOR /CTOBER .OVEMBER AND $ECEMBER
c 2EFERRING TO THE INFORMATION PROVIDED explain ONE REASON WHY BUDGETED .ET 0ROlT
AND "UDGETED .ET )NCREASE $ECREASE IN #ASH 0OSITION ARE LIKELY TO BE DIFFERENT FOR
$ECEMBER
EXERCISE 17.4
SCHEDULE OF RECEIPTS FROM DEBTORS
W B
page 376
*AZZY *ACKETS HAS PROVIDED THE FOLLOWING INFORMATION TO AID IN THE PREPARATION OF ITS
"UDGETED #ASH &LOW 3TATEMENT FOR !PRIL -AY AND *UNE
Month
Credit Sales
Cash Sales
January
50 000
43 000
February
40 000
32 000
March
45 000
35 000
April
35 000
May
30 000
32 000
June
20 000
26 000
4HESE AMOUNTS DO NOT INCLUDE '34
)T IS EXPECTED THAT OF DEBTORS WILL PAY IN THE MONTH OF SALE OF DEBTORS
WILL PAY IN THE MONTH FOLLOWING THE SALE AND THE REMAINING WILL PAY IN THE SECOND
MONTH FOLLOWING THE SALE
Required
a Calculate BUDGETED 2ECEIPTS FROM $EBTORS FOR !PRIL -AY AND *UNE
b Prepare AN EXTRACT OF THE "UDGETED #ASH &LOW 3TATEMENT FOR *AZZY *ACKETS THAT
SHOWS /PERATING CASH INmOWS FOR !PRIL -AY AND *UNE
c Explain HOW THE PREPARATION OF A "UDGETED #ASH &LOW 3TATEMENT CAN ASSIST PLANNING
EXERCISE 17.5
SCHEDULES AND THE BUDGETED
CASH FLOW STATEMENT
W B
page 377
/N *ANUARY "ETTYS "AGS COMMENCED /PERATIONS 0ROJECTED PURCHASES AND
3ALES FOR THE lRST FOUR MONTHS ARE
Month
Credit purchases
Credit Sales
Cash Sales
January
12 000
20 000
30 000
February
13 000
25 000
34 000
March
14 000
28 000
36 000
Additional information:
s 4HE AMOUNTS ABOVE DO not INCLUDE '34
s "ETTYS "AGS ALLOWS A DISCOUNT IF DEBTORS PAY WITHIN THE MONTH THAT THE SALE
OCCURRED )T IS EXPECTED THAT OF THE 3ALES WILL BE COLLECTED WITHIN THE DISCOUNT
PERIOD BY THE END OF THE MONTH AFTER PURCHASE IN THE FOLLOWING MONTH
AND THAT WILL BE UNCOLLECTABLE
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
BUDGETS
s /F CREDIT PURCHASES ARE PAID IN THE MONTH OF PURCHASE WITH THE REMAINDER
PAID IN THE FOLLOWING MONTH
s -ONTHLY EXPENSES INCLUDE ADVERTISING OF PLUS '34 WAGES OF AND
DEPRECIATION ON EQUIPMENT OF 4HERE ARE NO PREPAID OR ACCRUED EXPENSES
s #ASH DRAWINGS WILL BE PER MONTH
Required
a Calculate BUDGETED 2ECEIPTS FROM $EBTORS FOR *ANUARY &EBRUARY AND -ARCH
b Calculate BUDGETED 0AYMENTS TO #REDITORS FOR *ANUARY &EBRUARY AND -ARCH
c Prepare AN EXTRACT OF THE "UDGETED #ASH &LOW 3TATEMENT FOR "ETTYS "AGS THAT
SHOWS THE /PERATING ACTIVITIES FOR *ANUARY &EBRUARY AND -ARCH
d 2EFERRING TO YOUR ANSWER TO PART @C explain YOUR TREATMENT OF DEPRECIATION OF
EQUIPMENT
e Explain HOW CASH DRAWINGS WOULD BE REPORTED IN THE "UDGETED #ASH &LOW 3TATEMENT
f Explain HOW THE PREPARATION OF A "UDGETED #ASH &LOW 3TATEMENT CAN ASSIST DECISION
MAKING
EXERCISE 17.6
BUDGETED REPORTS
W B
page 379
$ANAS $ETERGENTS WILL BEGIN TRADING /PERATIONS ON -AY AND HAS PROVIDED THE
FOLLOWING ESTIMATES FOR ITS lRST MONTH OF /PERATIONS
s 4HE OWNER WILL MAKE A CAPITAL CONTRIBUTION OF TO COMMENCE /PERATIONS
s 3HELVING WORTH PLUS '34 WILL BE PURCHASED ON CREDIT FROM *ANCKE &ITTINGS
ON -AY "EFORE THE END OF -AY WILL BE PAID TO THE CREDITOR
s #ASH 3ALES ARE ESTIMATED TO BE PLUS '34
s #REDIT 3ALES ARE ESTIMATED TO BE INCLUDING '34 $EBTORS OWING AT THE END
OF -AY IS EXPECTED TO BE
s !LL STOCK WILL BE PURCHASED ON CREDIT 0URCHASES FOR -AY ARE EXPECTED TO BE
PLUS '34 !T THE END OF -AY IT IS ANTICIPATED THAT WILL BE
OWED TO CREDITORS
s #OST OF 3ALES IS EXPECTED TO BE AND BASED ON INDUSTRY AVERAGES 3TOCK ,OSS
IS EXPECTED TO BE
s 3IX MONTHS ADVERTISING WILL BE PAID IN ADVANCE ON -AY AT A COST OF
PLUS '34 4HERE WILL BE NO OTHER PREPAYMENTS OR ACCRUALS
s 4HE FOLLOWING EXPENSES WILL BE INCURRED DURING -AY
n WAGES
n DEPRECIATION OF SHELVING
n RENT
PLUS '34
s /N -AY A LOAN FOR WILL BE RECEIVED FROM :.! "ANK 4HE LOAN WILL
BE USED TO PURCHASE A VAN IN *UNE %ACH MONTH WILL BE PAID OFF THE
PRINCIPAL STARTING ON *UNE
s #ASH DRAWINGS WILL BE $RAWINGS OF STOCK IS EXPECTED TO BE
Required
a Prepare A "UDGETED #ASH &LOW 3TATEMENT FOR $ANAS $ETERGENTS FOR -AY
b Prepare A "UDGETED )NCOME 3TATEMENT FOR $ANAS $ETERGENTS FOR -AY
c Explain TWO REASONS WHY THE BUDGETED .ET )NCREASE IN #ASH 0OSITION IS MUCH LARGER
THAN THE BUDGETED .ET 0ROlT FOR -AY
d Show HOW THE 3TOCK #ONTROL AND '34 #LEARING ACCOUNTS WOULD APPEAR IN THE
'ENERAL ,EDGER AS AT -AY
e Prepare A "UDGETED "ALANCE 3HEET FOR $ANAS $ETERGENTS AS AT -AY
f Explain HOW A "UDGETED "ALANCE 3HEET CAN ASSIST PLANNING
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
417
CAMBRIDGE VCE ACCOUNTING
418
UNITS 3&4
EXERCISE 17.7
BUDGETED REPORTS
W B
page 382
/N *UNE THE "ALANCE 3HEET OF *ACUZZI *OINT SHOWED THE FOLLOWING
JACUZZI JOINT
Balance Sheet as at 30 June 2016
Current Assets
Bank
4 000
Stock Control
28 000
Debtors Control
0REPAID 2ENT
6 000
Current Liabilities
Creditors Control
9 900
200
'34 #LEARING
45 480
Non-Current Assets
!CCRUED )NTEREST %XPENSE
300
Sundry Creditor Wilks
11 150
Non-Current Liabilities
Ofce Equipment
24 000
Less Accumulated Depreciation
30 000
,OAN n !03 &INANCE
16 800
Owners Equity
Capital Jacqui
Total Assets
$62 280
Total Equities
21 130
$62 280
4HE OWNER HAS PROVIDED THE FOLLOWING INFORMATION TO ASSIST IN THE PREPARATION OF
BUDGETED REPORTS FOR *ULY
Month
Credit purchases
Credit Sales
Cash Sales
June
9 000
19 000
July
11 000
18 000
22 000
4HESE AMOUNTS DO not INCLUDE '34
s !LL STOCK IS MARKED UP
s 4HE OWNER EXPECTS A 3TOCK ,OSS OF FOR *ULY
s #REDIT 3ALES ARE RECEIVED IN THE MONTH OF THE SALE AND IN THE MONTH AFTER
THE SALE
s !LL PURCHASES ARE MADE ON CREDIT !MOUNTS OWING TO CREDITORS ARE PAID IN THE MONTH
FOLLOWING PURCHASE TO EARN A DISCOUNT
s 3IX MONTHS RENT WAS PREPAID ON -AY
s 7AGES PAID DURING *ULY WILL BE BUT WAGES IS EXPECTED TO BE
OWING AT THE END OF *ULY
s $EPRECIATION OF OFlCE EQUIPMENT FOR *ULY WILL BE
s %LECTRICITY EXPENSE WILL BE PLUS '34 4HIS AMOUNT WILL BE PAID IN FULL DURING *ULY
s )N *ULY WILL BE PAID TO COVER THE INTEREST EXPENSE FOR -AY *UNE AND *ULY
s $URING *ULY NEW OFlCE EQUIPMENT COSTING INCLUDING '34 WILL BE
PURCHASED ON CREDIT FROM 0HELPS #O ! PAYMENT OF WILL BE MADE TO 0HELPS
#O BEFORE THE END OF *ULY
s /N *ULY THE OWNER PLANS TO CONTRIBUTE CASH AND HER OWN VEHICLE
WORTH $RAWINGS OF CASH BY THE OWNER WILL BE
s 4HE AMOUNT OWING TO 3UNDRY #REDITOR n 7ILKS WILL BE PAID IN FULL
s 4HE ,OAN n !03 &INANCE IS AN INTEREST ONLY LOAN DUE IN FULL IN /CTOBER
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
BUDGETS
Required
a
b
c
d
e
Calculate BUDGETED 2ECEIPTS FROM $EBTORS FOR *ULY
Calculate BUDGETED 0AYMENTS TO #REDITORS FOR *ULY
Prepare A "UDGETED #ASH &LOW 3TATEMENT FOR *ACUZZI *OINT FOR *ULY
Prepare A "UDGETED )NCOME 3TATEMENT FOR *ACUZZI *OINT FOR *ULY
Explain TWO REASONS WHY THE .ET #ASH &LOWS FROM /PERATIONS IS BUDGETED TO BE
GREATER THAN THE .ET 0ROlT FOR *ULY
f Show HOW THE 3TOCK #ONTROL AND '34 #LEARING ACCOUNTS WOULD APPEAR IN THE
'ENERAL ,EDGER AS AT *ULY
g Prepare A "UDGETED "ALANCE 3HEET FOR *ACUZZI *OINT AS AT *ULY
EXERCISE 17.8
ACCOUNT RECONSTRUCTION
W B
page 386
-OVING "OXES SELLS CARDBOARD BOXES FOR PEOPLE WHO ARE MOVING HOUSE AND HAS
PROVIDED THE FOLLOWING INFORMATION RELATING TO THEIR $EBTORS #ONTROL ACCOUNT
s "ALANCE AS AT *ULY
s "UDGETED BALANCE AS AT *UNE
s "UDGETED #REDIT 3ALES FOR THE YEAR ENDED *UNE INCLUDING '34
s "UDGETED $ISCOUNT %XPENSE
Required
a &OR EACH ITEM ABOVE identify THE BUDGETED REPORT IN WHICH THE ITEM WILL APPEAR
b Reconstruct THE $EBTORS #ONTROL ACCOUNT TO DETERMINE BUDGETED 2ECEIPTS FROM
$EBTORS FOR THE YEAR ENDED *UNE
c Explain THE IMPORTANCE OF BUDGETED 3ALES IN THE BUDGETING PROCESS
EXERCISE 17.9
ACCOUNT RECONSTRUCTION
W B
page 387
"ULLY (IDES SELLS LEATHER PRODUCTS AND HAS PROVIDED THE FOLLOWING INFORMATION RELATING TO
ITS EXPECTED TRANSACTIONS FOR
s ACTUAL BALANCES AS AT *ANUARY
n $EBTORS #ONTROL
n #REDITORS #ONTROL
s BUDGETED BALANCES AS AT $ECEMBER
n $EBTORS #ONTROL
n #REDITORS #ONTROL
s FROM THE "UDGETED )NCOME 3TATEMENT
n #ASH 3ALES
n #REDIT 3ALES
n 3ALES 2ETURNS
n $ISCOUNT 2EVENUE
n "AD $EBTS
n $ISCOUNT %XPENSE
s OTHER INFORMATION
n CASH PURCHASES
n CREDIT PURCHASES
&IGURES DO NOT INCLUDE '34
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
419
420
CAMBRIDGE VCE ACCOUNTING
UNITS 3&4
Required
a Reconstruct THE $EBTORS #ONTROL ACCOUNT TO DETERMINE BUDGETED 2ECEIPTS FROM
$EBTORS FOR
b Prepare AN EXTRACT FROM THE "UDGETED #ASH &LOW 3TATEMENT FOR "ULLY (IDES FOR
THAT SHOWS /PERATING CASH INmOWS
c Reconstruct THE #REDITORS #ONTROL ACCOUNT TO DETERMINE BUDGETED 0AYMENTS TO
#REDITORS FOR
EXERCISE 17.10
ACCOUNT RECONSTRUCTION
W B
page 388
4ONYS 4YRE %MPORIUM HAS PROVIDED THE FOLLOWING INFORMATION RELATING TO ITS EXPECTED
TRANSACTIONS FOR THE YEAR ENDED *UNE
s BALANCES AS AT *ULY
n 3TOCK #ONTROL
n #REDITORS #ONTROL
s FROM THE "UDGETED )NCOME 3TATEMENT
n 3ALES
n 3ALES 2ETURNS
n 3TOCK 'AIN
n $ISCOUNT 2EVENUE
s EXPECTED BALANCES AS AT *UNE
n 3TOCK #ONTROL
n #REDITORS #ONTROL
s OTHER INFORMATION
n CASH PURCHASES
n DRAWINGS OF STOCK
&IGURES DO NOT INCLUDE '34
INCLUDES CASH
AND STOCK
!LL STOCK IS SOLD AT A MARK
UP
Required
a Reconstruct THE 3TOCK #ONTROL ACCOUNT TO DETERMINE BUDGETED CREDIT PURCHASES FOR
THE YEAR ENDED *UNE
b Reconstruct THE #REDITORS #ONTROL ACCOUNT TO DETERMINE BUDGETED 0AYMENTS TO
#REDITORS FOR THE YEAR ENDED *UNE
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
EXERCISE 17.11
CASH BUDGET VARIANCE REPORT
W B
BUDGETS
page 389
3IMPLY 3TUNNING SELLS HAIR CARE PRODUCTS TO HAIRDRESSERS IN -ELBOURNE AND HAS PROVIDED
THE FOLLOWING #ASH "UDGET 6ARIANCE 2EPORT FOR THE YEAR ENDED *UNE
SIMPLY STUNNING
Cash Budget Variance Report for the year ended 30 June 2016
Budgeted
Actual
Variance
Fav./
Unfav.
CASH FLOW FROM OPERATING
ACTIVITIES
2ECEIPTS FROM $EBTORS
99 200
89 200
Cash Sales
85 000
94 000
8 500
9 400
'34 2ECEIVED
0AYMENTS TO #REDITORS
Advertising
)NTEREST %XPENSE
'34 3ETTLEMENT
0REPAID 2ENT
'34 0AID
Wages
Net Cash Flows from Operations
25 460
5 410
0ROCEEDS ON 3ALE OF %QUIPMENT
5 000
3 000
Shelving
Net Cash Flows from Investing
Activities
5 000
(9 000)
Capital Contribution
20 000
Loan
CASH FLOW FROM INVESTING
ACTIVITIES
CASH FLOW FROM FINANCING
ACTIVITIES
Drawings
Net Cash Flows from Financing
Activities
(41 000)
(20 000)
Net Increase (Decrease) in Cash
Position
(10 540)
(23 590)
Add Bank Balance at start
8 500
8 500
Bank Balance at end
(2 040)
(15 090)
3OPHIE HAD ORGANISED AN OVERDRAFT LIMIT WITH THE BANK OF
Required
a Explain ONE BENElT OF PREPARING A #ASH "UDGET 6ARIANCE 2EPORT
b Complete THE #ASH "UDGET 6ARIANCE 2EPORT FOR 3IMPLY 3TUNNING FOR THE YEAR ENDED
*UNE
c State WHETHER THE VARIANCE IN 0AYMENTS TO #REDITORS IS FAVOURABLE OR UNFAVOURABLE
Justify YOUR ANSWER
d Suggest ONE POSSIBLE REASON FOR THE #APITAL #ONTRIBUTION
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
421
422
CAMBRIDGE VCE ACCOUNTING
UNITS 3&4
e Explain THE EFFECT ON THE ACTUAL CLOSING BANK BALANCE OF THE VARIANCES IN )NVESTING
ACTIVITIES
f Identify TWO ASSETS THAT WILL DIFFER AS AT *UNE AS A CONSEQUENCE OF THE
VARIANCES IN THE #ASH "UDGET 6ARIANCE 2EPORT Justify YOUR ANSWER
EXERCISE 17.12
CASH VARIANCE REPORT
W B
page 391
"RIGHT ,IGHTS HAS PROVIDED THE FOLLOWING PARTIALLY COMPLETED #ASH "UDGET 6ARIANCE
2EPORT FOR THE YEAR ENDED *UNE
BRIGHT LIGHTS
Cash Budget Variance Report (extract) for the year ended 30 June 2016
Budgeted
Actual
Variance
Fav./ Unfav.
5 000
300
1 000
2 500
CASH FLOW FROM
OPERATING ACTIVITIES
2ECEIPTS FROM $EBTORS
100 000
0AYMENTS TO #REDITORS
105 000
)NTEREST %XPENSE
'34 0AID
0REPAID 2ENT
CASH FLOW FROM
INVESTING ACTIVITIES
Sale of Shelving
Van
5 000
CASH FLOW FROM
FINANCING ACTIVITIES
Loan
Drawings
Additional information:
s 4HE BUDGETED FOR 0REPAID 2ENT FAILED TO TAKE INTO ACCOUNT IN PREPAID
RENT AT *ULY AND PREPAID RENT OF AT *UNE
s 4HE OWNER HAS ARGUED THAT THE ,OAN VARIANCE IS UNFAVOURABLE BECAUSE IT INCREASES
THE lRMS LIABILITIES
Required
a Calculate ACTUAL 0REPAID 2ENT FOR THE YEAR ENDING *UNE
b Complete THE #ASH "UDGET 6ARIANCE 2EPORT EXTRACT FOR "RIGHT ,IGHTS FOR THE YEAR
ENDED *UNE
c Explain WHETHER THE ,OAN VARIANCE IS FAVOURABLE OR UNFAVOURABLE
d 'IVEN THAT #REDIT 3ALES DECREASED suggest ONE POSSIBLE REASON FOR THE VARIANCE IN
2ECEIPTS FROM $EBTORS
e Explain ONE POSSIBLE EFFECT OF &INANCING ACTIVITIES ON THE lRMS ACTUAL .ET 0ROlT FOR
THE YEAR ENDED *UNE
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
EXERCISE 17.13
INCOME STATEMENT VARIANCE REPORT
W B
BUDGETS
page 393
Toot and Twang sells musical instruments from a shop in Melton, and has provided the
following Income Statement Variance Report for the year ended 30 June 2016:
TOOT AND TWANG
Income Statement Variance Report for the year ended 30 June 2016
Budgeted
Actual
120 000
110 000
Cost of Sales
70 000
55 000
Gross Profit
50 000
55 000
Add Stock Gain/(Loss)
1 500
(4 200)
Adjusted Gross Profit
51 500
50 800
1 500
6 500
53 000
57 300
Wages
18 000
19 000
Rent
12 000
14 000
Depreciation of Vehicles
2 300
1 600
Interest Expense
1 400
1 800
Net Profit/(Loss)
19 300
20 900
Variance
Fav./ Unfav.
Revenue
Sales
Less Cost of Goods Sold
Add Other Revenue
Profit on Disposal of Vehicle
Less Other Expenses
Required
a Explain the importance of variance analysis in the budgeting process.
b Complete the Income Statement Variance Report for Toot and Twang for the year
ended 30 June 2016.
c Explain whether the variance in Cost of Sales is favourable or unfavourable.
d Suggest one possible reason for the variance in Depreciation of Vehicles.
e Explain why the owner should be concerned about the firms profit performance
when compared to the budget.
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
423
424
CAMBRIDGE VCE ACCOUNTING
UNITS 3&4
EXERCISE 17.14
INCOME STATEMENT VARIANCE REPORT
W B
page 395
"LADES WHICH SELLS KITCHEN KNIVES AND CUTTING UTENSILS HAS PROVIDED THE FOLLOWING
)NCOME 3TATEMENT 6ARIANCE 2EPORT FOR THE YEAR ENDED *UNE
BLADES
Income Statement Variance Report for the year ended 30 June 2016
Budgeted
Actual
Variance
Fav./.Unfav.
Revenue
Sales
3ALES 2ETURNS
105 000
90 000
8 500
4 500
5000
300
96 500
Less Cost of Goods Sold
Cost of Sales
#ARTAGE )NWARDS
Gross Prot
Less Stock Loss
Adjusted Gross Prot
48 000
54 000
3 000
1 000
45 500
1 800
2 300
43 700
Less Other Expenses
Wages
28 000
2ENT
15 000
18 000
1 400
2 200
Depreciation Equipment
)NTEREST
800
Net Prot/(Loss)
4HE BUSINESS HAD AN OVERDRAFT OF AS AT *ULY
Required
a Complete THE )NCOME 3TATEMENT 6ARIANCE 2EPORT FOR "LADES FOR THE YEAR ENDED
*UNE
b Suggest TWO POSSIBLE REASONS FOR THE VARIANCE IN 3ALES 2ETURNS
c Suggest ONE POSSIBLE REASON FOR THE VARIANCE IN )NTEREST %XPENSE
d Explain THE IMPLICATIONS OF THE VARIANCE IN 'ROSS 0ROlT
EXERCISE 17.15
ACCOUNT RECONSTRUCTION AND
BUDGETED REPORTS
W B
page 396
3ETH "AYES IS THE PROPRIETOR OF "AYES 3URFBOARDS WHICH SELLS SURF GEAR ON THE 6ICTORIAN
WEST COAST (E HAS PROVIDED THE FOLLOWING INFORMATION TO ASSIST IN THE PREPARATION OF
BUDGETS FOR
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
CHAPTER 17
BUDGETS
BAYES SURFBOARDS
Assets and equities as at 31 December 2015
Assets
Equities
Debtors Control
Bank
5 000
'34 #LEARING
3 000
Stock Control
62 400
Creditors Control
41 800
Shop Fittings
52 000
Capital Bayes
69 500
Less Accumulated Depreciation
18 000
Total Assets
$117 000
Accrued Wages
Total Equities
$117 000
%XPECTED TRANSACTIONS FOR
s #REDIT 3ALES ARE EXPECTED TO BE AND WILL INCLUDE FOR $ECEMBER
'34 WILL ALSO BE CHARGED ON THESE AMOUNTS $EBTORS USUALLY PAY IN THE MONTH
FOLLOWING SALE TO TAKE ADVANTAGE OF A SETTLEMENT DISCOUNT
s #REDIT PURCHASES ARE BUDGETED TO BE PLUS '34 AND AS AT $ECEMBER
IS EXPECTED TO BE OWING TO CREDITORS
s !LL STOCK IS SOLD AT A MARK
UP
s /THER ESTIMATES FOR INCLUDE
n OCCUPANCY EXPENSES
PLUS '34
n OFlCE EXPENSES
PLUS '34
n WAGES EXPENSE
n DEPRECIATION EXPENSE
n CASH DRAWINGS
n STOCK LOSS
s ! '34 REFUND OF IS DUE FROM THE !4/ IN
s ! NEW ADVERTISING CONTRACT WILL BE SIGNED AND PAID ON 3EPTEMBER WITH THE
PAYMENT OF INCLUDING '34 COVERING MONTHS STARTING ON /CTOBER
!SIDE FROM THE ADVERTISING THERE WILL BE NO OTHER PREPAYMENTS OR ACCRUALS AS AT
$ECEMBER
s %ARLY IN $ECEMBER 3ETH WANTS TO BORROW FROM !8 "ANK TO lNANCE
THE PURCHASE OF NEW SHOP lTTINGS EARLY IN 4HE LOAN WILL BE REPAID IN FULL IN
$ECEMBER BUT INTEREST OF DUE ON $ECEMBER WILL NOT BE PAID
UNTIL THE NEXT WORKING DAY ON *ANUARY
s )N .OVEMBER SOME OLD SHOP lTTINGS WILL BE SOLD TO A LOCAL SUPERMARKET AT A
PROlT OF 4HE SHOP lTTINGS WERE ORIGINALLY WORTH BUT BY THE SALE DATE
WILL HAVE ACCUMULATED DEPRECIATION OF
Required
a
b
c
d
e
f
g
Calculate THE CASH PROCEEDS FROM THE DISPOSAL OF THE SHOP lTTINGS
Calculate BUDGETED 2ECEIPTS FROM $EBTORS FOR
Calculate BUDGETED 0AYMENTS TO #REDITORS FOR
Calculate BUDGETED '34 PAID FOR
Prepare A "UDGETED #ASH &LOW 3TATEMENT FOR "AYES 3URFBOARDS FOR
Explain ONE ADVANTAGE OF PREPARING BUDGETS MORE THAN ONCE A YEAR
Show HOW THE 3TOCK #ONTROL AND '34 #LEARING ACCOUNTS WOULD APPEAR IN THE
'ENERAL ,EDGER AS AT $ECEMBER
h Prepare AN EXTRACT OF THE "UDGETED "ALANCE 3HEET OF "AYES 3URFBOARDS AS AT
$ECEMBER THAT SHOWS #URRENT !SSETS AND #URRENT ,IABILITIES ! FULL "ALANCE
3HEET IS not REQUIRED
i Explain HOW A "UDGETED "ALANCE 3HEET CAN BE USED TO ASSIST PLANNING
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
425
CAMBRIDGE VCE ACCOUNTING
426
UNITS 3&4
EXERCISE 17.16
ACCOUNT RECONSTRUCTION AND
BUDGETED REPORTS
W B
page 399
0OPPY -ARCEL IS THE PROPRIETOR OF $IGITAL -ASTERS WHICH SELLS DIGITAL CAMERAS FROM A
SHOP IN 4ORQUAY 3HE HAS REQUESTED SOME ASSISTANCE IN PREPARING THE BUDGETS AND HAS
PROVIDED THE FOLLOWING INFORMATION
DIGITAL MASTERS
Account balances as at 30 June 2015
Debit
Credit
0REPAID 0HOTOCOPIER 2ENT
1 000
'34 #LEARING
3 400
Debtors Control
Bank
16 000
1 200
Creditors Control
Acc. Depreciation Shop Fittings
21 600
Stock Control
35 000
Accrued Wages
1 300
Shop Fittings
48 000
Capital Marcel
61 200
$101 200
$101 200
!NTICIPATED TRANSACTIONS FOR THE YEAR ENDED *UNE
s #ASH 3ALES ARE EXPECTED TO BE PLUS '34 AND #REDIT 3ALES OF PLUS
'34 $EBTORS AS AT *UNE ARE EXPECTED TO BE
s !LL STOCK IS PURCHASED ON CREDIT AND SOLD AT A MARK
UP
s /THER ESTIMATES FOR THE YEAR INCLUDE
n PURCHASES OF STOCK
PLUS '34
n SALES RETURNS
PLUS '34
n DISCOUNT EXPENSE
n WAGE EXPENSE INCURRED
n DEPRECIATION n SHOP lTTINGS
n CASH DRAWINGS
n STOCK LOSS
s 0OPPY IS CURRENTLY RENTING A PHOTOCOPIER AT INCLUDING '34 PER MONTH PAYABLE
MONTHS IN ADVANCE 0OPPY HAS RECEIVED NOTIlCATION THAT THE RENT WILL INCREASE
TO INCLUDING '34 PER MONTH COMMENCING WITH THE NEXT PAYMENT DUE ON
3EPTEMBER
s /N !PRIL THE BUSINESS WILL INVEST IN A THREE
YEAR TERM DEPOSIT )NTEREST
IS EARNED AT PER ANNUM PAYABLE ON -ARCH EACH YEAR
s %STIMATED BALANCES AS AT *UNE INCLUDE
3TOCK #ONTROL
n "ANK /VERDRAFT
n '34 #LEARING
#2
Required
a Calculate BUDGETED RENT EXPENSE FOR THE YEAR ENDED *UNE
b Calculate BUDGETED INTEREST REVENUE FOR THE YEAR ENDED *UNE
c Prepare A "UDGETED )NCOME 3TATEMENT FOR $IGITAL -ASTERS FOR THE YEAR ENDED
*UNE
d Explain HOW THE PREPARATION OF A "UDGETED )NCOME 3TATEMENT COULD ASSIST WITH
PLANNING TO ACHIEVE AN IMPROVED 'ROSS 0ROlT
e Prepare AN EXTRACT OF THE "UDGETED "ALANCE 3HEET OF $IGITAL -ASTERS AS AT
*UNE THAT SHOWS #URRENT AND .ON
CURRENT !SSETS ! FULL "ALANCE 3HEET IS
not REQUIRED
f Explain ONE BENElT OF PREPARING A "UDGETED "ALANCE 3HEET
Anthony Simmons, Richard Hardy 2012
ISBN 978-1-107-64070-2
Photocopying is restricted under law and must not be transferred to another party.
Cambridge University Press
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