* * * * * * * * * Chapter 15 Chapter 15 Budgeting Budgeting and and Controlling Controlling Operations Operations and Taxes and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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Chapter 15Chapter 15
Budgeting and Budgeting and Controlling Controlling Operations Operations and Taxesand Taxes
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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Budgeting And Controlling Operations And Taxes
Small Business ControlSmall Business ControlTypes Of BudgetsTypes Of BudgetsObtaining Information Obtaining Information & Ratios & RatiosTaxes & Tax SystemTaxes & Tax SystemRecord Keeping & Tax Record Keeping & Tax ReportingReportingFactors/Problems In Getting Factors/Problems In Getting CreditCredit
Photodisc Collection/Getty Images
15 - 2
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15 - 3McGraw-Hill/Irwin
ControlControl
“…“…the process of the process of ensuring that ensuring that organizational organizational
goals are goals are achieved.”achieved.”
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15 - 4
Control ProcessControl Process1. Setup Standards1. Setup Standards
2. Measure Performance2. Measure Performance
3. Actual vs. Planned3. Actual vs. Planned
4. Deviations Excessive?4. Deviations Excessive?
5. Take Corrective Action5. Take Corrective Action
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15 - 5
Set StandardsSet StandardsUnits Consumer/ProducedUnits Consumer/Produced
oStandard Hours Per UnitStandard Hours Per UnitoMiles Per GallonMiles Per Gallon
Price Paid/Charged- Price Price Paid/Charged- Price Per Unit Per Unit
RequiresRequiresoIntuitionIntuitionoPast PerformancePast PerformanceoMeasurementMeasurementoComparisonComparisonoCommunicationCommunication Keith Brofsky/Getty Images
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15 - 6
Effective ControlsEffective ControlsTimelyTimelyCost EffectiveCost EffectiveAccurateAccurateQuantifiableQuantifiableMeasurableMeasurableIndicate Cause/EffectIndicate Cause/EffectResponsibilityResponsibilityAcceptableAcceptable
PhotoDisc Imaging/Getty Images
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15 - 7
BudgetBudget“…“…a detailed statement a detailed statement
of financial results of financial results expected for a given expected for a given
future period.”future period.”
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Types Of BudgetsTypes Of Budgets
CapitalCapital
OperatingOperating
Cash FlowCash Flow Steve Cole/Getty Images
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15 - 9
Operating BudgetOperating Budget
•SalesSales
•ProductionProduction
•PersonnelPersonnelRoyalty-Free/CORBIS
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Cash Flow BudgetCash Flow Budget$
$
$
$$ Plan Daily/Weekly Cash Plan Daily/Weekly Cash NeedsNeeds
$
$
$
$$ Plan Monthly Cash NeedsPlan Monthly Cash Needs$
$
$
$$ Prepare For Cash Flow CrisisPrepare For Cash Flow Crisis• Establish/Maintain Good CreditEstablish/Maintain Good Credit
• Set Aside Funds To Earn InterestSet Aside Funds To Earn Interest
• Schedule PaymentsSchedule Payments
• Keep Fixed Costs Low & Tie Variable Keep Fixed Costs Low & Tie Variable Costs To RevenueCosts To Revenue
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15 - 11
Cash Budget FormatCash Budget Format
BudgetBudget ActualActual
Expected Cash ReceiptsExpected Cash Receipts $$$$$$$$ $$$$$$$$
Expected Cash PaymentsExpected Cash Payments $$$$$$$$ $$$$$$$$
Cash BalancesCash Balances $$$$$$$$ $$$$$$$$
Cash- Capital InvestmentCash- Capital Investment $$$$$$$$ $$$$$$$$
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Cash BalanceCash Balance
Beg. Of Month- Balance
+ Total Cash Receipts
- Total Cash Payments
End Of Month- Balance
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Budgetary ControlBudgetary Control
“…“…the system of the system of budgets used to budgets used to
control a company’s control a company’s financial activities.”financial activities.”
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Credit, Collections,Credit, Collections,& A/R Control& A/R Control
Identify Slow PayersIdentify Slow Payers
Investigate Customer’s Investigate Customer’s Ability & Willingness Ability & Willingness To Pay To Pay
Monitor Past DueMonitor Past Due
Write-Off UncollectiblesWrite-Off Uncollectibles
Steve Cole/Getty Images
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AuditAudit“…“…a formalized a formalized
examination examination and/or review of a and/or review of a
company’s company’s financial financial records.”records.”
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Types Of AuditsTypes Of Audits
FinancialFinancial
InternalInternal
OperationsOperations
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FeedbackFeedbackObtain InformationObtain Information
oObservationObservation
oOral ReportsOral Reports
oWritten Memos/ReportsWritten Memos/Reports
Compare Actual vs. Compare Actual vs.
StandardsStandardsJacobs Stock Photography/Getty Images
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Causes OfCauses OfPoor PerformancePoor Performance
Wrong ObjectivesWrong ObjectivesCustomers Not BuyingCustomers Not BuyingPoor SchedulingPoor SchedulingTheft/SpoilageTheft/SpoilageToo Many EmployeesToo Many EmployeesLost OpportunitiesLost OpportunitiesToo Much Free Too Much Free
Service/DonationsService/Donations
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15 - 19
RatiosRatios
“…“…relationships relationships between two or between two or more variables.more variables.
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RatioRatioComparison ValuesComparison Values
Firm’sFirm’s• Current ValueCurrent Value• Past ValuePast Value
Firm’sFirm’s• Current ValueCurrent Value• Industry ValuesIndustry Values
Can Be InterrelatedCan Be Interrelated
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Financial RatiosFinancial Ratios
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Profits Satisfactory?Profits Satisfactory?
Net Profit To Net Profit To Owners’ Equity Owners’ Equity
Net Profit To Net Profit To Net Sales Net Sales
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Assets Productive?Assets Productive?
Net Sales To Net Sales To Fixed Assets Fixed Assets
Net Sales To Net Sales To Owners’ Equity Owners’ Equity
Ryan McVay/Getty Images
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15 - 24
Debt Payments?Debt Payments?CurrentCurrent
Acid Test (Quick)Acid Test (Quick)
Working CapitalWorking Capital
Accounts Receivable To Accounts Receivable To Working CapitalWorking Capital
Inventory To Working Inventory To Working CapitalCapital
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15 - 25
Business Assets?Business Assets?
Collection PeriodCollection Period
Net Sales To Inventory Net Sales To Inventory (Inventory Turnover) (Inventory Turnover)
Net Sales To Working Net Sales To Working Capital Capital
Royalty-Free/CORBIS
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15 - 26
Equity Satisfactory?Equity Satisfactory?
Long-Term Liabilities Long-Term Liabilities To Working CapitalTo Working CapitalDebt To Owners’ EquityDebt To Owners’ EquityCurrent Liabilities To Current Liabilities To Owners’ Equity Owners’ EquityFixed Assets To Fixed Assets To Owners’ EquityOwners’ Equity
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U.S. Tax SystemU.S. Tax SystemDetermines Taxes Determines Taxes & Who Will Pay & Who Will Pay
Collection Of TaxesCollection Of Taxes
Internal Revenue Internal Revenue Service- Service- www.irs.ustreas.govwww.irs.ustreas.gov
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TaxesTaxesIndirectIndirect
DirectDirect
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Selected Direct TaxesSelected Direct Taxes
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Tax EffectsTax EffectsIncome Tax On ProfitsIncome Tax On ProfitsEmployer Withhold/MatchEmployer Withhold/MatchOwner Personal TaxesOwner Personal TaxesTransfer Of OwnershipTransfer Of OwnershipBusiness DecisionsBusiness DecisionsGovernment Administrative Cost Government Administrative Cost
Of CollectionOf Collection
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Types Of TaxesTypes Of TaxesExcise/Intangible Excise/Intangible
Property Property
Sales & UseSales & Use
Federal, State, & Federal, State, & Local Income Local Income
S. Meltzer/PhotoLink/Getty Images
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State Sales TaxesState Sales Taxes
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Taxable IncomeTaxable Income
“…“…total revenues total revenues minus deductible minus deductible
expenses.”expenses.”
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Deductible ExpensesDeductible Expenses
Cost Of Goods SoldCost Of Goods Sold
SellingSelling
AdministrativeAdministrative PhotoDisc/Getty Images
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Cost of Goods SoldCost of Goods Sold& Inventory Valuation& Inventory Valuation
First-In, First-Out First-In, First-Out (FIFO) (FIFO)
Last-In, First-Out Last-In, First-Out (LIFO) (LIFO)
Average CostAverage Cost Kim Steele/Getty Images
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15 - 36
Employment-Related TaxesEmployment-Related Taxes
Income Tax WithholdingIncome Tax WithholdingSocial Security/MedicareSocial Security/MedicareUnemployment Unemployment
CompensationCompensationoFederal AdministrationFederal Administration
oStateState
Workers’ CompensationWorkers’ Compensation
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Owners’ Personal TaxesOwners’ Personal Taxes
Salaries & Bonuses Salaries & Bonuses Withdrawn From CompanyWithdrawn From Company
DividendsDividendsContract For Business Contract For Business
Sale SaleoNoncompete ClauseNoncompete Clause
oSeller Warranties & Seller Warranties & RepresentationsRepresentations
oPurchase PricePurchase Price
Retro Americana
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Credit ManagementCredit Management
Decide Method Of Customer Decide Method Of Customer PaymentPaymentCashCashCheck/DebitCheck/DebitCreditCredit
Set Credit Policies & Set Credit Policies & PracticesPracticesAdminister Credit OperationsAdminister Credit Operations
Jack Star/PhotoLink/Getty Images
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Credit vs. Debit Card UseCredit vs. Debit Card Use
$1.08$0.84
$1.45$1.48
$2.20
$2.60
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
2000 2003 2007
Credit
Debit
Sales Volume (in trillions)Sales Volume (in trillions)
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