SITXFIN004 - Online Study Guide

Online Study Guide
 Prepare and monitor budgets from Futura

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AIC_SITXFIN004_OS V1.0 2
 Budgeting is the process of creating a plan to
spend your money. This spending plan is called a
budget. Creating this spending plan allows you to
determine in advance whether you will have
enough money to do the things you need to do or
would like to do.
 Budget Provides Direction
 Budgets motivates Staff
 Budgets Coordinate Business Activities
 Budget Helps Evaluate Business Performance
 Master budget
 Cashflow Budgets
 Departmental Budgets
 Wage Budgets
 Project budgets
 Events Budgets
Internal
 Management Restructure
 Human Resources
 New Projects
 Changes in Commodity
External
 Legislations
 Global Economy
 Market Trends
 Historical Performance
 Competitor's offer and Price Levels
 Managements View of Future
 Departmental Views and Issues
 Performance Data From Previous Period
 Financial Proposals
 Financial Information From Suppliers
 Customer Research
 Competitor Research
 Management Policies
 Budget Preparation Guidelines
 Commitments in Given Areas of Operation
 Budget Preparation principles
◦ It is important to follow both organisational and
accounting procedures when preparing budgets.
◦ Using correct estimation procedures or a software can be
used
 Budget Components
◦ Sales or revenue budget
◦ Purchases and Cost Of Goods Sold (COGS)
◦ Wage budget
◦ Operating/expense budget
◦ Budgeted profit and loss statement
 Master Budget – The master budget is the budget
for the entire business, includes projected
cashflow; profit and loss and balance sheet. It
includes all aspects of operations of all the
departments and prepared by the budgeting
committee.
 Cashflow Statement – also known as a cash
budget, this is the forecast of physical cashflow in
and out of the business.
 Departmental Budgets – each department within
the business will have its own budget. Some
departments will have income and expense while
others like administration will have only expenses
 Wage Budgets – While wages will be included in
each departments, there will also be a total wage
budget. This will help management to analyse
individual staff wages and to analyse for future
wage rates.
 Project Budgets – is prepared before a new
project is commenced, this will help analyse the
cost and benefit of the new project.
 Events Budgets – used for single events like
conferences and will be in a format of mini profit
and Loss statement
 Sales Budgets – also known as revenue budget, it
shows the projected sales either in units sold or as
revenue amount. Sales budget is the first to be
determined when preparing the budget to keep the
expenditure and staff wages in line.
 Purchasing Budgets – also known as expense
budgets, they show the projected expenditure of
the business.
 Capital Expenditure Budgets – this budget is used
to purchase assets. The items included are not
expenses but assets to the business. This will not
appear in profit and loss but will be include in
balance sheet
 Analysing Draft Budgets
◦ The feedbacks from draft budget must be analysed as
the draft budge will undergo changes based on the
feedback before it is finalised.
◦ The budgeting process requires strong negotiation skills
as the feedback received on the budges could be
negative.
 Completing final Budget
The final budget format is same as the draft budget
and any changes to draft budges should be entered
quickly to the final budget. A hard and soft copy of th efinal
budget should be kept in a secure place
 Once the final budget has been prepared it should
be distributed to all the appropriate stakeholders.
 Each department head should understand the
budget and how it contribute to the overall
business.
 The management team should be advised of any
requirement for reports.
 The department management should share the
budget information with their team members and
inform them of the expectations.
 Staff should be advised of the importance of the
budget control and achieving the budget each
month.
 Monitoring Budget
◦ Having a budget to refer during business activities
through the year is very important.
◦ The budget should be compared with actuals every
month to ensure the business is performing as expected.
◦ Any variances should be identified and addresses early
or else it become difficult to adjust the strategies.
 Financial reports must be prepared using reliable,
relevant, accurate data, so accurate decisions can
be made.
 The financial reports also provides statistical
information about the business overtime.
 Financial and statistical reports are used to
analyse a businesses performance.
 It is common for businesses to prepare financial
statements on a monthly, quarterly, and annually.
 Monitoring of transactions are done on a more
frequent basis i.e. daily or weekly
 Once the financial reports have been prepared a
document should be completed which includes a
variety of reports.
 A small business might only include Profit and
Loss, Balance sheet and Cashflow statement.
 A large business would also include Sales report,
Departmental budgets, Cash flow statement.
 Check organisations, format, layout and types of
reports at the work
 L the financial information inside a business is
strictly confidential
 Cashflow Reports – shows the current cash on
hand, forecast when money is likely to come into
business
 Cover Reports – are completed by restaurants
and allow analysis of the number of guests served
in a service period
 Average Customer Spend – equals the income
divided by number of customers for a given
period. To calculate the average spending of
customers
 Occupancy Reports – used by hotels to analyse
the occupancy level of the establishment.
 Staff Cost Reports – are used to analyse staffing
levels compared o revenue levels and budgets.
Staff cost is often shown as a percentage of total
revenue.
 Units sold Reports- are to analyse the success of
different products.
 Sales Reports – are produced by each revenue
producing departments. Sales reports are used by
managers to analyse the performance of each
department compared to the budget.
 Stock Report – shows the closing stock at hand at
the end of the reporting period. It is important to
set realistic par levels and reorder points.
 Variance Reports – highlights deviations from
budget and management can investigate why the
variance happened.
 Wastage Reports–shows how much stock is
wasted each period. Each time an incorrect
beverage is made or stock goes off it must be
recorded.
 Purchase Summary Reports–summary of all
purchases in a period.
 Labour and Wage Report–Amount spent on
wages for each department. Broken up in to full
time and casual staff
 Expenditure Reports –could be in tow forms
labour and non –labour, shows expenditures like
advertising, stationary Budget reports –show the
entire budget compared to the actuals
 Once the financial reports have been completed,
every general ledger code should be checked
against budget and any variance noted.
 The variance could be favourable or unfavourable.
 Different businesses have different policies about
how much variance from budget is acceptable.
 When variances for each departments have been
identified the finance team would check to see
whether there have been any errors in recording
transactions.
 If there are no errors then the spending/ expenses
might be higher than the budget.
 It is up to the managers to implement measures to
give explanations to the variance and to
implement procedures to rectify the variance.
 Variance can happened due to poor sales,
breakdown of equipment, theft and poor stock
control.
 There are variety of approaches to maximising the
budget.
 An often used approach is to cut expense as
much as possible to minimise costs.
 Often includes cuts to staff numbers, stationery
and any other expense deemed unnecessary, but
this can affect product/ service quality.
 An alternative approach is to increase sales
 Revenue variance should be analysed and
improvement suggested by staff and the
management.
 A capital expenditure budget is a formal plan that
states the amounts and timing of fixed asset
purchases by an organization. This budget is part
of the annual budget used by a firm, which is used
to organize activities for the upcoming year.
 The initial investment for a budget and planning
software may be expensive, but swapping those
spreadsheets for the right software can help
business save more money down the road. This
will not only boost productivity, but will also cut
down on data speculations and guessing.
 E.g. Xero, MYOB, Centage
 Analysing and Draft Budget Feedback
 Completing Final Budget
 Communicating the Final Budget
 Communicating Resource Allocations
 Monitoring Budgets
 Preparing Accurate Financial and Statistical
Reports
 Completing Reports
 The budget should be reviewed on a regular basis
to ensure that it is still relevant.
 Factors such as price increases, significant
downturns in customers and changes in
operations mean the budget should be updated
throughout the year.
 In order to amend the budget, analysis should be
completed of the business internally, as well as
any external factors.
 The budget status and any changes that are made
to budget should be communicated to the Budget
Committee.
 A manager of the section has more experience
with running that department, its staffing needs as
well as best ways to improve the business.
 In order to have a budget change approved the
manager must explain their ideas, costs, reasons
in a report.
 Any recommendations for the future budgets must
be communicated.
 Having an accurate budget and monitoring it to
reduce the variance will help businesses achieve
their financial goals.

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 Prepare and monitor budgets from Futura

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