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Enrollment No.

: MBISMCT11118178

MBA Information Systems 1st Year Assignment
Annamalai University

3: Accounting and Finance For Managers

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MBA Information Systems – Principles of
Management

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Basic accounting rules group all finance related transactions/things into five fundamental types of “accounts”.: MBISMCT11118178 Question #1: Explain the accounting concepts that are being followed in organization and how they are useful in preparing financial statements. a condition that can only be satisfied if values are enter to multiple accounts. Answer:- Introduction Accounts are records of financial transactions. pay check is income. Each account is kept on a separate page in the ledger. This helps with financial planning. For example. That is.  Income – increases the value in accounts. Information will then be extracted so that it can be presented in a financial report.  Expenses – decreases the value from accounts. This is expressed mathematically in what is known as the Accounting Equation: Assets – Liabilities = Equity + (Income – Expenses) This equation must always be balanced.  Liabilities – things are owe. the cash in the bank account is an asset. Accounting Concepts MBA Information Systems – Principles of Management Page | 2 . Information that is used in accounts is initially entered into books of prime entry. This means pay check make "richer" and expense make "poorer". which may simply be paper or computer records.  Equity – overall net worth. From there the information will be entered into a double entry system in a book (or computer programme) called the ledger. It is clear that it is possible to categorize financial world into these 5 groups. everything that accounting deals with can be placed into one of these five accounts:  Assets – things are own. Net worth is calculated by subtracting liabilities from the assets: Assets – Liabilities = Equity Equity can be increased through income. and every account has two sides .Enrollment No. and the cost of dinner last night is an expense. and decreased through expenses.a debit and a credit side. mortgage is a liability.

The price which is actually paid is recorded in account books.  In the absence of this concept.Enrollment No. Significance  This concept helps in ascertaining the profit of the business as only the business expenses and revenues are recorded and all the private and personal expenses are ignored.  It is of great help to the investors. The exchanges take place through the medium of money. goods used from the stock of the business for business purpose are treated as business expenditure but similar goods used by the proprietor for his personal use are treated as his drawings.  On the basis of this concept. MBA Information Systems – Principles of Management Page | 3 .: MBISMCT11118178 The term concept includes those basic assumptions or conditions upon which the science of accounting is based. it assures them that they will continue to get income on their investments.  These concept restraints accountants from recording of owner’s private/ personal transactions. Significance  This concept requires asset to be shown at the price it has been acquired. The present resources of the concern are utilized to attain the objectives of the business. For example. The following are the important accounting concepts Business Entity Concept In accounting business is treated as a separate entity from its owners.  A business is judged for its capacity to earn profits in future. A distinction is made between business transactions and personal transactions. The Cost Concept Business involves exchange of goods and services. The money paid for the exchange becomes the cost of goods. A distinction is also made in private property and business property of owners. This concept is very important in relation to the preparation of financial statements. which can be verified from the supporting documents. Significance  This concept facilitates preparation of financial statements. the cost of a fixed asset will be treated as an expense in the year of its purchase. because.  It also facilitates the recording and reporting of business transactions from the business point of view  It is the very basis of accounting concepts. The cost of items to a business is the amount of money paid in acquiring it. depreciation is charged on the fixed asset. conventions and principles Going Concern Concept It is presumed that the concern will continue to exist indefinitely or at least in the near future.

 It facilitates comparison of business performance of two different periods of the same firm or of the two different firms for the same period.  It helps in recording business transactions uniformly. Significance  This concept helps accountant in detecting error. The interpretation of the Dual aspect concept is that every transaction has an equal effect on assets and liabilities in such a way that total assets are always equal to total liabilities of the business. According to this concept. Money provides a mechanism by which real resources can be transferred among different individuals. as liabilities or creditors’ equity.  If all the business transactions are expressed in monetary terms. the owners will be able ti ascertain how much money is left with them after paying off all the liabilities. As per going concept. There must be a giver of benefit and also a taker of it. this item will not be shown in the books of accounts. Money Measurement Concept According to this concept only those transactions are recorded in accounting which can be expressed in terms of money. the assets are realizable only at the time of dissolution and creditors will be paid off at that time. Modern accounting system is based on dual aspect concept.  It encourages the accountant to post each entry in opposite sides of two affected accounts. The effect of cost concept is that if the business entity does not pay anything for an asset.Enrollment No. Money is accepted as medium of exchange for goods and services. Account Period concept The concern is considered as a going concern. Significance  This concept guides accountants what to record and what not to record. Duality concept is commonly expressed as follows Assets = Liabilities + Capital The above accounting equation states that the assets of a business are always equal to the claims of owner/owners and the outsiders. Dual Aspect Concept This concept lies at the heart of the whole accounting system. there is a corresponding credit transaction. it will be easy to understand the accounts prepared by the business enterprise.: MBISMCT11118178   It helps in calculating depreciation on fixed assets. This claim is also termed as capital or owner’s equity and that of outsiders. Significance MBA Information Systems – Principles of Management Page | 4 . It is based on the principle that for every debit transaction.

Receipt of order 2.Enrollment No.: MBISMCT11118178     It helps in predicting the future prospects of the business. 1. Production of goods 3. Accounting Concepts for Financial Statement Preparation The Financial Statements are found to be more useful to many people immediately after presentation only in order to study the financial status of the enterprise in the angle of their own objectives. The preparation of Final accounts the business firm involves two different stages. Despatch of goods 4. The difference between income from sales and cost of producing the goods will be profit. The preparation of MBA Information Systems – Principles of Management Page | 5 . whether paid/not paid during the year should be taken into account while ascertaining profit or loss for that year. Preparation of Accounting and Positioning Statement of the enterprises. The revenue is realized either from sale of products or from rendering of services. The costs are matched to revenues. It also helps banks. Receipt of money Significance  It helps in making the accounting information more objective. etc to assess and analyze the performance of business for a particular period. the matching concept implies that all revenues earned during an accounting year. Significance  It guides how the expenses should be matched with revenue for determining exact profit or loss for a particular period. It also helps the business firms to distribute their income at regular intervals as dividends. It helps in calculating tax on business income calculated for a particular time period. whether received/not received during that year and all cost incurred. it is called profit. Therefore. The sale of products involves a number of stages i. If the expenses are more than revenue it is called loss. This is what exactly has been done by applying the matching concept. creditors. If the revenue is more than the expenses. Realizing Concept This concept is related to the realization of revenue. Matching of Cost and Revenue Concept The aim of every business is to produce profits.  It provides that the transactions should be recorded only when goods are delivered to the buyer. financial institutions.e.  It is very helpful for the investors/shareholders to know the exact amount of profit or loss of the business.

Rs. Gross Loss is the outcome of an excess of the debit side total over the total of credit side. Material consumed could be calculated Material consumption = Opening stock + Purchases .: MBISMCT11118178 accounting statement involves two different category.. Trading Account This is first Financial Statement prepared by the owner of the enterprise to determine the gross profit during the year through the matching Concept of Accounting. manufacturing expenses. Balance Sheet 1. Oil xxxxx To Duty on Import of xxxxx Materials To Gross Profit C/d xxxxx Balancing Process: Gross profit is the resultant of an excess of the credit side total over the total of debit side.e.Closing stock 2. To Opening Stock xxxxx By Cash Sales xxxxx To Cash Purchase xxxxx Add Credit Sales xxxxx Add Credit Purchase xxxxx By Total Sales xxxxx To Total Purchase xxxxx Less Sales return xxxxx Less Purchase Return xxxxx By Net Sales xxxxx To Net Purchases xxxxx By Closing Stock xxxxx To Wages xxxxx By Gross Loss C/d xxxxx To Carriage Inward xxxxx To Factory Lighting xxxxx To Fuel. Coal. Balance sheet. Rs. and other direct expenses with the sales. The gross profit of the enterprise is calculated through the comparison of purchase expenses.Enrollment No. The purpose of crediting the closing stock in the trading account is to find out the materials or goods consumed for trading purposes. operating cycle of the enterprise which should not exceed 15 months with reference to the Companies Act 1956. Trading account and Profit and Loss account. Trading Account of ABC Company for the year ending……………… Dr Cr Rs. The preparation of the positional statement involves only one statement. Profit and Loss Account 3. Profit & Loss Account MBA Information Systems – Principles of Management Page | 6 . It means that the gross profit is the excess of incomes in the credit side over the expenses in the debit side. It is prepared normally for one year in accordance with Accounting Period Concept i. Rs. Trading Account 2. It means that the gross loss is the excess of expenses in the debit side over the incomes in the credit side. The following Financial Statement are prepared by considering the accounting concepts: 1.

selling and distribution expenses with the gross profit and other incomes of the enterprise. Cr Rs. the expenses and losses are debited and incomes and gains are credited. Legal Expense. To Gross Loss B/d xxxxx Balancing figure Office and Administrative Expenses To Salaries To Rent. Rates and Taxes To Office Expenses To general Expenses To Miscellaneous Expenses Selling and Distribution Expenses To Salary to Sales staff To Commission charges To Advertising expenses To Carriage outwards To Bad debts Packing Expenses Financial Expenses To Interest on capitol To Interest on Loan To trade discount allowed MBA Information Systems – Principles of Management Company for the year ending………….Enrollment No. In the profit & loss account. 12 months in period. Selling & Distribution Expenses 3. Classified into various categories 1. The expenses which are matched with the credit total of the profit and loss account. Financial Expenses 4. The transactions are recorded in accordance with golden rules of nominal account. Profit and Loss account of XYZ Dr Rs. By Gross Profit xxxxx By Rent Received By Commission received By Increase on drawing By interest on investment By trade discount received Page | 7 . Administrative Expense 2. This is an account prepared for one Operating Cycle of the firm i.e. This is an accounting statement matches the administrative.: MBISMCT11118178 It is a second statement of accounting in connection with the earlier to determine the Net profit/loss of the enterprise out of the early found Gross profit/loss.

Liabilities and Assets respectively. Assets Capital Land & Building xxxx Less: Drawings Plant & Material xxxx Add: Net Profit Furniture & fittings xxxx xxxxx Fixtures & tools Long Term Borrowing xxxxx Marketable securities Sundrey Creditors xxxxx Closing stock Bills Payable xxxxx Sundry debtors Bank Overdraft xxxxx Bills receivable Outstanding expenses xxxxx Pre paid expenses Pre received income xxxxx Cash at Bank Cash in hand Total liabilities xxxxx Total Assets MBA Information Systems – Principles of Management Rs. the balance sheet can be divided into two distinct sides. Balance Sheet of ABC Company as at dated…………… Liabilities Rs. The balance sheet can be disclosed in two different orders: 1. 2. Net Loss is an outcome of excess of expenses in the debit side over the incomes in the credit side. xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx Page | 8 . known as liabilities and assets. In the order of long lastingness – permanence.e. according to Double Entry Concept or Duality Concept.: MBISMCT11118178 Maintenance Expenses To Depreciation of Fixed assets To loss on sale of assets Other Expenses To provision for debts To Net profit c/d To profit on sale of assets By Net loss c/d Balancing process of the profit and loss account leads to two different categories: Net profit is the resultant of excess of income in the credit side over the expenses in the debit side of the Profit and Loss account. 3. Balance Sheet Balance sheet is the third Financial Statement which reveals the financial status of the enterprise through the total amount of resources raised and applied in the form of assets.Enrollment No. From the early. In the order of liquidity. This is the fundamental statement of the firm which explores the firm financial stature through the resources mobilized and investments applied i.

three different components to be separately considered i. planning a budget helps a business allocate resources. Balance sheet is the third financial statement based on Duality Concept. Answer:- Budgeting A Budget is a plan that outlines an organization's financial and operational goals. Mercantile Method of Accounting: Under this method.” MBA Information Systems – Principles of Management Page | 9 . prepared and approved prior to a defined period of time. “a blue print of a projected plan of action of a business for a definite period of time. cash receipts are matched with the cash payments irrespective of the time period in order to determine the income. So a budget may be thought of as an action plan. of the policy to be pursed during the period for the purpose of attaining a given objective. England It is also defined as. time period is given greater importance than the actual receipts and payments. which reveals the financial status of the enterprise through the total amount of resources raised and applied in the form of assets.: MBISMCT11118178 Total Liabilities xxxxx Cash in hand Total Assets xxxxx xxxxx Methods of determining the accounting income includes: Cash Method of Accounting: Under this method.e. In order to find out the total amount of goods or materials consumed during a year.” – ICMA.Enrollment No. It is popularly known in other words as "Accrual Accounting System". The receipts as well as payments of the other periods should be ignored /eliminated in determining the income of the stipulated duration. Conclusion Trading Account is first financial statement prepared by the owner of the enterprise to determine the gross profit during the year through the matching concept of accounting. Opening stock. “A budget is Financial and/or quantitative statements. Profit & Loss Account is a second statement of accounting in connection with the earlier to determine the Net profit/loss of the enterprise out of the early found Gross profit/loss. Question #3: Budgeting is the one of the main tool to control the cost – Give your views. It records the receipts and expenses pertaining to the specified period whether them are actually received /paid or not. and formulate plans. evaluate performance. Purchases and Closing Stock.

 It may be stated in terms of money or quantity or both. Profit Budget: A profit budget combines both expense and revenue budgets into one statement to show gross and net profits. It is a budget that projects future sales. Capital expenditures budgets. 2.  It is a statement defining the objectives to be attained and the policy to be followed to achieve them in a future period. as one considers controlling/monitoring. 3. Typically. Zero-Base Budgets. These three functions dictate that budgeting and the financial management process be flexible but accountable throughout the fiscal period. At all management levels. Types of Budgets There are many types of budgets. 2. Operating Budgets An operating budget is a statement that presents the financial plan for each responsibility centre during the budget period and reflects operating activities involving revenues and expenses. Discretionary expenses . control activities across units. Revenue Budget and Profit budgets. 1. Co-ordinating. Revenue Budget: A revenue budget identifies the revenues required by the organization. Operating budgets. They may be classified into several basic types. Controlling and monitoring are terms often used interchangeably. budgets typically represent an effective element of control. check on the adequacy of expense budgets relative to anticipated revenues. and 4.fixed. whether on a day-to-day operational basis or on a longer term basis. Profit budgets are used to make final resource allocation.costs that depend on managerial judgment because they cannot be determined with certainty. Three different kinds of expenses normally are evaluated in the expense budget . variable and discretionary.Enrollment No. Expense Budget: An expense budget is an operating budget that documents expected expenses during the budget period. Financial Budgets MBA Information Systems – Principles of Management P a g e | 10 . for example: legal fees.: MBISMCT11118178 According to the definition. budgets serve three major purposes: Planning. b. and assign responsibility to managers for their shares of the organization's financial performance. c. and Controlling. Most organizations develop and make use of three different types of budgets: 1. a. Financial budgets. accounting fees and R&D expense. the essential features of a budget are:  It is prepared for a definite period well in advance. The most common types of operating budgets are: Expense Budget.

4. in contrast. to on top of important capital projects.Enrollment No. Zero-base budgeting (ZBB).: MBISMCT11118178 Financial Budgets outline how an organization is going to acquire its cash and how it intends to use the cash. many managers resort to a variable budget. Investment in property. attention has been increasingly given to variable or flexible budgets. variable budgets are cost schedules that show how each cost should vary as the level of activity or output varies. There are three types of costs that must be considered when variable budgets are being developed: fixed. and when cash flows deviate from budgeted amounts. Capital Expenditure Budget: Capital Expenditure Budgets. The cash budget helps managers determine whether they will have adequate amounts of cash to handle required disbursements when necessary. To deal with this difficulty. and to ensure the adequate cash is available to meet these expenditures as they come due. The balance sheet budget: The balance sheet budget plans the amount of assets and liabilities for the end of the time period under considerations. 3. Cash budget: Cash budgets are forecasts of how much cash the organization has on hand and how much it will need to meet expenses. rather than re-evaluating the need for things already included. Whereas fixed budgeted express that individual costs should be at one specified volume. It forces department managers to thoroughly examine their operations and justify their departments activities based on their direct to the achievement of organizational goals. Zero-base budgeting assumes that the previous year's budget is not a valid base from which to work. buildings and major equipment are called capital expenditure. Three important financial budgets are the cash budget. capital expenditure budget and the balance sheet budget. Variable Budgets Because of the dangers arising from inflexibility in budgets and because of maximum flexibility consistent with efficiency underlines good planning. The problem in devising variable budgets is that cost variability is often difficult to determine and that they are often quite expensive to prepare. A balance sheet budget is also known as a Performa balance sheet. when there will be excess cash that needs to be invested. b. and semi-variable costs. MBA Information Systems – Principles of Management P a g e | 11 . Such capital expenditure budgets allow management to forecast capital requirements. enables the organization to look at its activities and priorities a fresh. Analysis of the balance sheet budget may suggest problems or opportunities that will require managers to alter some of the other budgets. c. Managers tend to prepare new budget requests by adding an incremental amount to their previous year's budget requests. variable. Zero-Base Budgets The conventional budgeting process does have one major disadvantage. a.

alternative ways of achieving objectives. The decision package includes written statements of the department's objectives. Evaluate the various activities and rank them in of decreasing benefits to the organization." – J. Top-down Budgeting: Many traditional companies use. and overall resources availability. Thus. Batty MBA Information Systems – Principles of Management P a g e | 12 . which they have gleaned from day-to-day operations. Rankings for all organizational activities are reviewed and selecting by top managers. because the plan and control resources and revenues are essential to the firm's health and survival. Budgetary Control Budgets are the most widely used control system. England "Budgetary control is a system which uses budgets as a means of planning and controlling all aspects of producing and/or selling commodities and services. Bottom-up Budgeting: Other organizations use. In reality. Managers then assign a rank order to the activities in their department for the coming year. "The establishment of budgets relating to the responsibilities of executives to the requirements of a policy and the continuous comparison of actual with budgeted results. plus the consequences expected if the activity is not approved.” – ICMA. and benefits. a process developing budgets in which lower-level and middle managers anticipate their departments' resource needs. activities. a process of developing budgets in which top management outlines the overall figures and middle and lower-level managers plan accordingly. including their familiarity with the company's goals. costs.Enrollment No. strategic plans. which are passed up the hierarchy and approved by top management. the budgetary process usually involves a mixture of both styles. 2. either to secure by individual action the objectives of that policy or to provide a basis for its revision. The Budget Preparation There are two type of budgeting process: 1. the top-down process enables managers set budget targets for each department to meet the needs of overall company revenues and expenditures. The bottom-up approach builds on the specialized knowledge of operating managers about environment and marketplace.: MBISMCT11118178 The specific steps used in zero-based budgeting are as follows: Break down each of an organization's activities into decisions packages. The top-down process has certain advantages: Top managers have comprehensive knowledge of the organization and its environment.

 To co-ordinate the activities of different departments. The evaluation of performance becomes easy when different centers are established. 2. 4.  To fix the responsibility of various individual in the organization.  To operate various cost centers and departments with efficiency and economy. 1. In case there is a difference between actual and budgeted performance taking suitable remedial action  Monitoring of the actual performance with the budget and revise budgets if necessary.  To correct deviations from Established standards. Budget Committee: In small companies. The Manager of various departments prepares their budgets and submits to this committee. The committee will take necessary adjustments.  To indicate to the management as to where action is needed to solve problems without delay.  Recording of actual performance. budget officers and the managers of various departments. Budget Centre. budget centre is that part of the organization for which the budget is prepared.: MBISMCT11118178 The main steps in budgetary control are:  Establishment of budgets for each section of the organization. But in big companies. (Say production department or purchase section). 3. Budget Committee. Key Factor. the budget is prepared by the committee. Objectives of Budgetary Control The objectives. A budget centre may be a department. Organization Chart: There should be a well defined organization chart for budgetary control. The establishment of budget centre is essential for covering all parts of the organization. the budget is prepared by the cost accountant. of budgetary control are:  To define the goal and provide long and short period plans for attaining these goals. 3.  To estimate future capital expenditure requirements and centralize the control system. 2. co-ordinate all the budgets and prepare a master Budget. Budget Period. This will show the authority and responsibility of each executive. The following steps should be taken in a sound system of budgetary control: 1. 6. 5. Budget Manual. The budget committee consists of the chief executive to managing director. Budget Centre: A. The budget centre" are also necessary for cost contra] purposes. or a section of the department. Organization Chart. The MBA Information Systems – Principles of Management P a g e | 13 .Enrollment No.  To estimate waste and increase the profitability.

 A budget committee should be established consisting of the budget director and the executives of various departments of the organization. Budget Period: A budget period is the length of time for which a budget is prepared and deployed.  To prepare the Master Budget after functional budget are approved. purchase and sales Budget may be for one year. Reports.  Duties and powers and functions of the budget officer and the budget committee. production budget.  To suggest revision of functional budgets if needed and approve finally revised budgets.  The budget figures should be realistic and easily attainable.  To recommend corrective action if and when required. The budget period depends upon the following factors. The delegation of authority should be done in a proper way. Budget Manual: Budget Manual is a book which contains the procedure to be followed by the executives / concerned with the budget.  Variation between actual figures and budgeted figures should be MBA Information Systems – Principles of Management P a g e | 14 . capital. 4. 3 to 5 years.: MBISMCT11118178 main functions of the committee are:  To receive and scrutinize all budgets and decide the policy to be followed. Therefore the budget relating to the key factor is prepared before other budgets are framed. 5. A capital budget may be for a longer period i.Enrollment No. labor.  The nature of the demand for the producer and timings for the availability of finance. It is the responsibility of the budget officer to prepare and maintain this manual. Key Factor: It is also known as limiting factor or governing factor or principal budget factor.  Procedure to be followed for obtaining approval.  To study variations of actual performance from the budget.  The type of budget whether it is a sales budget. statements form and charts to be used. 6.  There should be a proper fixation of authority and responsibility. plant capacity or sales. It may be different for different industries or even it may be different in the same industry or business.  Budget period. The following ore the requirements of a good budgetary control system:  Budgetary control system should have the whole-hearted support of the top management. It guides all executives in preparing various budgets. It may arise due to the shortage of material. account classification. A key factor is one which restricts the volume of production. by capital expenditure budget. raw material purchase budget. The budget manual may contain the following particulars:  A brief explanation of objectives and principles of budgetary control.e. It is a factor which affects all other budgets.

: MBISMCT11118178   reported properly and clearly to the appropriate levels of management.Enrollment No. A good accounting system is essential to make budgeting successful. The budget should not cost more to operate than is worth. MBA Information Systems – Principles of Management P a g e | 15 .

 It provides a basis for introducing incentive remuneration plans based on performance. There will be no stoppage of production on account of shortage of raw materials or working capital.  It helps the management to fix up responsibility to reduce wasteful expenditure. liability and net worth position of the business Profit Planning: The sales forecast and corresponding costs and expenses are the major inputs to a Profit Plan. and guide to the management. Cash Budgeting: A Cash Budget is used to determine anticipated cash inflows and outflows so that the business maintains the optimum level of cash. This leads to reduction in the Cost of production.  It brings in efficiency and economy by promoting cost consciousness among the employees and facilitates introduction of standard costing.  It helps in the smooth running of the business unit. Budgeting as a Control Tool A budget serves as a control tool to provide standards for evaluating performance.  It helps in estimating the financial needs of the concern.  It acts as internal audit by a continuous evaluation of departmental results and costs.  It indicates to the Management as to where action is needed to solve problems without delay. Why is profit planning important? It enables the entrepreneur to see the complete picture and to analyze how each cost and expense item behaves in relation to changes in the level of sales. It acts as a friend. It fixes targets and the various departments have efficiently to reach the targets. The following are the advantages of budgetary control:  Budgetary control defines the objectives and policies of the undertaking as a whole. A budget can cover any of the following:  Profit planning – forecast of revenues and expenses  Cash budgeting – forecast of cash needs and sources  Balance sheet forecasting – anticipating future assets.Enrollment No. It also provides information on whether or not additional financing is MBA Information Systems – Principles of Management P a g e | 16 . The reason is that everything is planned and provided in advanced. philosopher.: MBISMCT11118178 Advantages of Budgetary Control Budgetary control has become an essential tool of the management for controlling costs and maximizing profits.  It is an effective method of controlling the activities of various departments of a business unit. Budgeted amounts are then compared with actual results and variances are analyzed and corrected. Hence the possibility of under capitalization is eliminated.

000 units The desirable closing balances at the end of the next year are: Finished product 14. Balance Sheet Forecasting: This involves estimating asset levels to support the forecasted sales targets.. then necessarily.000 units Raw Materials A: 12. changes in the funding mix (i.Enrollment No. The first step in preparing a Cash Budget is to list down all transactions having cash flow implications. equipment and other asset purchases. Cash Disbursements. may include cash operating expenses. The estimated opening balances at the commencement of the next year are: Finished product : 10. if the higher sales targets would necessitate opening more retail outlets. (Units) Material A Material B Estimated consumption 2x 1. The production Manager consults the Storekeeper and casts his figures as follows: Two kinds of raw materials A and B. investments in fixed assets are a must.000 Estimated Production 54.000 units B: 16. a higher level of long-term loans vs. From this exercise.000 units Prepare Production Budget and Materials Purchase Budget for the next year Solution: PRODUCTION BUDGET (Units) Estimated sales 50. a Net Cash Balance is derived. This is then carried over to the next as the beginning cash balance. are required for manufacturing the product.000 3x 54000 MBA Information Systems – Principles of Management P a g e | 17 .: MBISMCT11118178 required to address cash shortfalls. Some businesses choose to have a pre-determined minimum required cash balance which they maintain at all times.08.62.000 Add: Desired closing 14. short-term borrowings) may also occur. Example: The Sales Director of a manufacturing company reports that next year he expect to sell 50. and repayments on bank loans. For example. B: 15. on the other hand. Each unit of the product requires 2 units of A and 3 units of B.000 units of a particular product.000 units. A: 13.000 54000 1. Moreover.000 Less: Opening Stock 10.000 stock 64. raw material purchases.e.000 MATERIALS PURCHASE OR PROCUREMENT BUDGET.000 units.

000 1.09000 16.: MBISMCT11118178 Add: Desired closing stock Less: Opening Stock Estimated Purchase MBA Information Systems – Principles of Management 13.000 P a g e | 18 .000 15.000 12.000 1.Enrollment No. 63.000 1.21.78.000 1.