BUDGETING AS THE

INSTRUMENT OF
WORKING CAPITAL
MANAGEMENT
Group 5
GIORDAN FRANCISCO JOY ANGELIE TERRADO
MERIE GRACE CAGATIN ROMELY CORONEL
MARY ROSE ECOT CELESTINE JOY TUSAN

WORKING
Working capital management is a business
strategy designed to ensure that a company
operates efficiently by monitoring and using its
current assets and liabilities to their most

CAPITAL effective use

Is essential to accompanies fundamental

financial health and operational success as
a business.

it can improve a company's cash flow

management and earnings quality by using
its resources efficiently.
BUDGET

A formal statement of
the financial
resources set aside
for carrying out
specific activities in a
given period of time.
 BUDGETING
IN FINANCIAL
PLANNING
Budgeting is a process usually
undertaken before the beginning of
the financial year, to create a plan or
estimate of the expected incomes and
expenditures in the upcoming financial
year. The budgeting process is usually
collaborative, enabling budget
assumptions to be agreed and stated.
BUDGETING DIRECTIONS
CREATING A BUDGET
Adjust your
spending to stay
on budget
Track your
Calculate your
spending.
net income. The
Review your
foundation of an
Set realistic budget
effective budget
goals. regularly
is your net
income.
Make a plan.
 Historical Budgeting
TYPES OF looks at what the business

BUDGETS
spent the previous year to
obtain its allowance for the
forth coming year.

Fixed Budget Zero Budgeting Flexible Budgeting

Budget can be
Budget holders means starting with
P0 each year and altered to meet
must stick to
justifying everything changing market
their budget they need getting condition/needs
plans. approval for money. of the business.
 SALES
BUDGET
It is a key function of sales
management. It involves estimating
future level of revenue and selling
expenses, and consequently the profit
contribution made by the sales
function.
TWO OUTCOME OF SALES BUDGETING DOCUMENTS;
Selling Expenses
Sales Budget
Budget

 PRODUCTION BUDGET

It is a plan or estimate of the quantum of products required for

production by the organization over a period.
Production budget" refers to the budget set by a business for how many
units of a product will be required and produced, see demand forecasting
and financial forecast more generally.

DIRECT MATERIAL
COST BUDGET
Shows the budgeted cost for
the direct material that will need
to be purchased to satisfy the
estimated production for the
period. Not only does it helps in
estimating the material prices
over a period of time, but also
analyses the material
requirement.
DIRECT WAGES AND
SALARIES BUDGET
This are the monetary
compensation that employers
pay their workers. An employee
receives this pay for helping the
company generate revenue.
Used to calculate the number of
labor hours that will be needed to
produce the units itemized in the
production budget.
MANUFACTURING OVERHEAD BUDGET
A manufacturing overhead budget contains all the
costs, other than raw materials and labor, that will be
incurred by a manufacturing company or department
during a fiscal year.
Overhead Budget is prepared to forecast and present all the
expected costs concerning manufacturing the goods that the
company expects to incur in the next year. It excludes the direct
material and the direct labor cost, and the information, which
becomes part of the cost of the goods sold in the master budget.
 FINISHED GOODS
INVENTORY BUDGET
A finished goods inventory budget
considers the direct raw materials, direct
labor, and overhead costs. In that sense,
it's similar to the COGM calculation, but it
doesn't take in account WIP inventory. All
it's doing is assigning a value to every unit
produced based on raw materials, labor,
and overhead.
 SALES AND
ADMINISTRATIVE
EXPENSES BUDGET
The selling and administrative expense budget is
comprised of the budgets of all non-manufacturing
departments, such as the sales, marketing, accounting,
engineering, and facilities departments. In aggregate, this
budget can rival the size of the production budget, and so
is worthy of considerable attention.
 PROFIT AND LOSS
STATEMENT BUDGET
The profit and loss budget is a summary of expected
income and expenses over a specified financial period.
Businesses may wish to budget on a monthly, quarterly or
annual basis.
For your profit and loss budget, income and expense
information is set against the business operating plans for
the budget period.

CASH FLOW
Cash flow budget preparation;

BUDGET
A cash flow budget is all
·Determine the time frame
·Estimate sales unit
about tracking the timing of ·Estimate sales income
your income and expenses to
·Estimate timing of income
make sure you have enough
·Itemize and add expenditures
from week to week.
·Work out surplus for deficit
The cash flow budget is a ·Review sales units
plan of how cash will be
·Review timing of sales income
coming into the operation
(cash inflows) and leaving the
·Review expenditure
operation (cash outflows). ·Finalize the budget
CAPITAL BUDGET
Capital budgeting is the process a business undertakes to evaluate
potential major projects or investments. Construction of a new plant or
a big investment in an outside venture are examples of projects that
would require capital budgeting before they are approved or rejected.

BALANCE SHEET BUDGET

A budgeted balance sheet is a financial document that presents the
estimated value of a startup's assets, liabilities, and equity in the
foreseeable future. Overall, this estimated financial statement determines
if the existing budget proposal will be beneficial to your startup or if a new
one should be developed
 BUDGETARY THE TWO CAN BE BROADLY DISTINGUISHED
AS FOLLOWS:

CONTROL 1) Monitoring budgets

Checking accuracy of actual income
To ensure effective budgetary control, and expenditure reported; comparing
budgets must be effectively monitored “actuals” with budgets; calculating
and managed. Although the difference variances; identifying trends;
between monitoring and managing highlighting any variations to the
budgets is not clearly defined, there budget owner
are certain characteristics that set 2) Managing Budgets
them apart. Taking the necessary action, based
on the monitoring results, to ensure
the budget remains within control.
 5 STEPS OF BUDGETARY CONTROL PROCESS
1. Establish Actual Position
To establish the actual position, the budget holder will 3. Calculating Variances
need to examine and understand the financial
information available. They will need to know how In the context of budgetary
current the information is and adjust it for any control, the term variance
outstanding transactions
refers to the difference
2. Compare Actual with Budget between actual and budget
(planned) income and
After completing Step 1, the information gathered
needs be compared to the budgeted figures set at the
expenditure.
beginning of the financial year. This comparison
should be simple if the actual income and expenditure
headings match those that were originally set.
 5 STEPS OF BUDGETARY CONTROL PROCESS
4. Establish Reasons for Variances
There are several reasons that can account for differences found between
the budgeted and actual expenditure. The reasons for all variances needs
to be identified. This process is critical to effective budgetary control, as the
budget holder needs to know when it is appropriate to take corrective
action. Variances can be both positive and negative, reflecting excess
spending or under spending, or over/under performance on income.
5. Take Action
Budgets can only be controlled if corrective action is taken in
response to the variances.
 •coordinates activities across
departments.
•Budgets translate strategic plans into
action.
•Budgets provide an excellent record of
ADVANTAGES organizational activities.

OF •Budgets improve communication with

employees.

BUDGETING •Budgets improve resources allocation,

because all requests are clarified and
justified.
•Budgets provide a tool for corrective action
through reallocations.
DISADVANTAGES OF BUDGETING
The major problem occurs when budgets are applied
mechanicallyand rigidly.
•Budgets can demotivate employees because of lack of participation.
If the budgets are arbitrarily imposed top down, employees will not
understand the reason for budgeted expenditures, and will not be
committed to them.
•Budgets can cause perceptions of unfairness. Budgets can create
competition for resources and politics.
•A rigid budget structure reduces initiative and innovation at lower
levels, making it impossible to obtain money for new ideas.
THANKS
FOR