Budget Preparation

1. Sales Budget
2. Production Budget
Sales Budget

 The most important in financial statement account in

forecasting is sales because almost all other account in
the financial statement are affected by sales.

 The decision of management to expand production

capacity is based on projected increase in sales.
Sales Budget

Factors to be consider in preparing sales budget:

1. External Factor
2. Internal Factor
External Factor

 Gross Domestic Product - it is a monetary measure of the

market value of all final goods and services produced.
 Interest Rate
 Foreign exchange rate
 Income tax rate
 Inflation
 Economic crisis
 Political crisis
Internal Factor
 Pricing
 Promotion activities
 Distribution
 Area/outlet coverage
 Production capacity
 Human resources
 Management style of manager
 Financial resources of the company
Production Budget
 Is a schedule which provides information regarding the number
of units that should be produced over a given accounting period
based on expected sales and targeted level of ending
inventories.

Required Production in Units = Expected Sales + Target Ending

Inventories – Beginning Inventories
Production Budget
Production Budget

In projecting financial statement this are the following steps to be

followed:
1. Forecast sales – In making financial projection always start
with the statement of profit and loss and the most important
account to forecast is sales.
2. Forecast cost of sales and operating expenses
3. Forecast net income and retained earnings
4. Determine balance sheet items that will vary with the sales or
whose balances will be highly correlated with sales
5. Determine payment schedule for loans
6. Determine external funds needed
7. Determine how external funds needed will be financed