SENIOR HIGH SCHOOL

BUSINESS FINANCE
Quarter 3 – Module 5:
Financial Planning Tools and
Concepts
Business Finance – Grade 12
Alternative Delivery Mode
Quarter 3 – Module 5: Financial Planning Tools and Concepts
First Edition, 2021

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Published by the Department of Education

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Writers: Louell E. Bodios, Maricris C. Cancino and Mara Ellyn H. Lacson
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 SENIOR HIGH SCHOOL

BUSINESS FINANCE
Quarter 3 – Module 5:
Financial Planning Tools and
Concepts
Introductory Message
For the facilitator:

Welcome to the Business Finance Alternative Delivery Mode (ADM) Module on Financial
Planning Tools and Concepts!

This module was collaboratively designed, developed and reviewed by educators both from
public institutions to assist you, the teacher or facilitator in helping the learners meet the
standards set by the K to 12 Curriculum while overcoming their personal, social, and economic
constraints in schooling.

This learning resource hopes to engage the learners into guided and independent learning
activities at their own pace and time. Furthermore, this also aims to help learners acquire the
needed 21st century skills while taking into consideration their needs and circumstances.

In addition to the material in the main text, you will also see this box in the body of the module:

Notes to the Teacher

This contains helpful tips or strategies that will
help you in guiding the learners.

As a facilitator, you are expected to orient the learners on how to use this module. You also
need to keep track of the learners' progress while allowing them to manage their own learning.
Furthermore, you are expected to encourage and assist the learners as they do the tasks
included in the module.
For the learner:

Welcome to the Business Finance Alternative Delivery Mode (ADM) Module on Financial
Planning Tools and Concepts!

This module was designed to provide you with fun and meaningful opportunities for guided
and independent learning at your own pace and time. You will be enabled to process the
contents of the learning resource while being an active learner.

This module has the following parts and corresponding icons:

This will give you an idea of the skills or

What I Need to Know
competencies you are expected to learn in the
module.
This part includes an activity that aims to check
What I Know what you already know about the lesson to take. If
you get all the answers correct (100%), you may
decide to skip this module.
This is a brief drill or review to help you link the
What’s In
current lesson with the previous one.

In this portion, the new lesson will be introduced to

What’s New
you in various ways; a story, a song, a poem, a
problem opener, an activity or a situation.
This section provides a brief discussion of the
What Is It
lesson. This aims to help you discover and
understand new concepts and skills.
This comprises activities for independent practice
What’s More to solidify your understanding and skills of the
topic. You may check the answers to the exercises
using the Answer Key at the end of the module.
This includes questions or blank
What I Have Learned
sentence/paragraph to be filled in to process what
you learned from the lesson.
This section provides an activity which will help
What Can I Do
you transfer your new knowledge or skill into real
life situations or concerns.
This is a task which aims to evaluate your level of
Assessment
mastery in achieving the learning competency.

In this portion, another activity will be given to you

Additional Activities
to enrich your knowledge or skill of the lesson
learned.

Answer Key This contains answers to all activities in the

module.
At the end of this module you will also find:

References This is a list of all sources used in developing this

module.

The following are some reminders in using this module:

1. Use the module with care. Do not put unnecessary mark/s on any part of the module.
Use a separate sheet of paper in performing the exercises.
2. Don’t forget to answer What I Know before moving on to the other activities included
in the module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through with it.
If you encounter any difficulty in answering the tasks in this module, do not hesitate to
consult your teacher or facilitator. Always bear in mind that you are not alone.
We hope that through this material, you will experience meaningful learning and gain deep
understanding of the relevant competencies. You can do it!
 What I Need to Know

This module was designed and written with you in mind. It is here to help you to go through
with the budget preparation, cash management and working capital management. The scope
of this module permits it to be used in many different learning situations. The language used
recognizes the diverse vocabulary level of students. The lessons are arranged to follow the
standard sequence of the course. But the order in which you read them can be changed to
correspond with the textbook you are now using.

The module has only one lesson, namely:

• Lesson 1 – Preparing budgets such as projected collection, sales budget, production
budget, income projected statement of comprehensive income, projected financial
position and projected cash flows statement.
• Lesson 2 – Illustrating the formula and format for the preparation of budgets and
projected financial statement.

After going through this module, you are expected to:

1. Illustrate the formula and format for the preparation of budgets and projected financial
system. (ABM_BF12-IIIc-d-11)
 What I Know

Multiple Choice. Select the best answer among the choices given. Letters only. Use a
separate answer sheet for your answers.

1. A budget is not ____________.

a. a. a forecast
b. b. a plan
c. a qualitative statement
d. a part of the strategic management process
2. A forecast is not ____________.
a. a budget c. based on expert opinion
b. based on extrapolation of past data d. a prediction of future events
3. Which of the following is not one of the main purposes of a budget?
a. the alignment of individual and corporate goals
b. to enable a flexibility of approach to company policies
c. to optimize the use of scarce resources
d. planning and control

4. Which of the following is not a function of budgeting?

a. Controlling c. Motivating
b. Decision Making d. Planning

5. A production budget is not derived from the

a. sales volume budget c. inventory volume budget
b. direct labor budget d. purchasing volume budget

6. In a manufacturing company, which budget is the first to be prepared in the budget

process?
a. the sales budget c. the cash flow budget
b. the capital expenditure budget d. the production budget

7. Identify the correct components of the income statement.

a. revenues, losses, expenses, and gains
b. assets, liabilities, and owner’s equity
c. revenues, expenses, investments by owners, distributions to owners
d. assets, liabilities, and dividends

8. The balance sheet lists are consist of?

a. assets, liabilities, and owners’ equity
b. revenues, expenses, gains, and losses
c. assets, liabilities, and investments by owners
d. revenues, expenses, gains, and distributions to owners

9. Which of the following is the correct order of preparing the financial statements?
a. income statement, statement of cash flows, balance sheet, statement of
owner’s equity
b. income statement, statement of owner’s equity, balance sheet, statement of
cash flows
c. income statement, balance sheet, statement of owner’s equity, statement of
cash flows
d. income statement, balance sheet, statement of cash flows, statement of
owner’s equity
 10. Which financial statement shows the financial performance of the company on a cash
basis?
a. balance sheet c. statement of cash flows
b. statement of owner’s equity d. income statement

What’s In

You are planning a one-day conference and you hope to make P1,000 profit out of it.
The expected number of persons attending is 100. The conference program will have four (4)
speakers and each will be paid P150 for their services on the day. The venue is a hotel function
room and it will cost P1,000 for the day.

Other expected costs include:

Advertising PhP1,000.00 Table and Linen PhP100.00
Photocopying and Printing 500.00 Giveaway Stationery 200.00
Flowers and shrubs 200.00
Food and refreshments for all the participants at PhP10.00 per head

Guide Questions:
1. How much registration fees will you need to charge each conference participant to
make the target P1, 000 profits if you have 100 registrations?

Income
Registration Fees
Total Income
Expenditure
Hotel Accommodation
Speaker
Advertising
Photocopying and printing
Flowers and shrubs
Table linen
Giveaway stationery
Food and refreshments
Total Expenditure
Profit
 What’s New

Below are different expenses categories in day-to-day living of an individual. Choose among
the categories which you spent your money mostly. Using the chart below, indicate the
amount spent and unto which you spent money the most.

Expense Categories

Spending Summary
Category Total Amount Spent
Automobile
Clothing
Computer
Donations/Gifts
Entertainment
Foods
Household/Rent
Personal Care
Recreation
Savings
School
Transportation
Other

Guide Questions:

1. Using the chart above, how much money did you spend in each category?
2. Where did you spend the most money?
 What Is It
?

In the activity given you were able to list the category

in which you spend your money and you were able to
identify how much you spend in each category. Have
you ever experienced that you don’t have enough
money to spend for your need? If yes, then you check
INCOME EXPENSES out how to balance your income and expenses. And
this activity is called budgeting.

BUDGETING

Budget is the process of creating a plan to spend your money. Since budgeting allows you to
create a spending for your money, it ensures that you will always have enough money for the
things you need and the things that are important to you. It is the company’s tool for both
planning and control. At the beginning of the period, the budget is a plan or standard; and at
the end of the period, it serves as a control device to help management measure the firm’s
performance against the plan so that future performance may be improved. Budget, in short
is a company’s annual financial plan. In long word, it is a set of formal (written) statements of
management’s expectations regarding sales, expenses, production volume, and various
financial transactions of the firm for the coming period. Budget is consisting of pro-forma
statements about the company’s finances and operations.
Budgets help business track and manage their resources. Businesses use a variety of budgets
to measure their spending and develop effective strategies for maximizing their assets and
revenues. The following types of budgets are commonly used by business. Budgeting is simply
balancing your expenses with your income. If they don't balance and you spend more than
you make, you will have a problem. Many people don't realize that they spend more than they
earn and slowly sink deeper into debt every year.
Budgeting is the financial direction of where management wants to take the company, helping
quantify the expectation of revenues that a business wants to achieve for a future period,
Financial forecasting tells whether the company is headed in the right direction, estimating the
amount of revenue and income that will be achieved in the future.
General Structure of a Complete Set of Budget
The master budget is a comprehensive financial plan made up of various individual
departmental and activity budgets for the year. A master budget can be divided into:
1. Operational Budget – which outline the income-generating activities of a firm (sales,
production, and finished goods inventories). It reflects the results of operating
decisions, consists of eight elements follows:
• Sales Budget (including a computation of “expected cash collection”)
• Production Budget
• Ending Inventory Budget
• Direct Materials Budget (including a computation of “expected cash
disbursements/payment for materials)
 • Direct Labor Budget
• Factory Overhead Budget
• Selling and Administrative Expense Budget
• Pro Forma (or Budgeted) Income Statement

2. Financial budget – which outline the inflows and outflows of cash and the financial
position. It reflects the financial decisions of the firm, consists two of:
• Cash Budget
• Pro Forma (Budgeted) Balance Sheet

The master budget is usually prepared for a one-year period corresponding to the company’s
fiscal year.

The yearly master budget can be broken down into quarterly and monthly budgets to allow
managers to compare actual data with budgeted data as the year unfolds and to make timely
corrections.

The major steps in preparing the budget are:

1. Prepare a sales forecast (Sales Budget)
2. Determine production volume (Production Budget
3. Estimate manufacturing costs and operating expenses (Direct Material, Direct
Labor and Factory Overhead Budget)
4. Determine cash flow and other financial effects (The Cash Budget)
5. Formulate projected financial statements (Budgeted Income Statement and
Balance Sheet
OPERATIONAL BUDGET

The first part of the master budget is the operating budget. The components of the operating
budget include the sales budget and the production budget:
The sales budget is the projection approved by the budget committee that describes expected
sales for each product in units and dollars for the coming period. The sales budget may reveal
seasonal fluctuations in sales.

It also refers to the estimation of the sales revenue and the sales overheads for a particular
period. A more accurate sales forecast means better utilization of resources, higher profitability
and less wastage. It is the first and basic component of master budget and it shows the
expected number of sales units of a period and the expected price per unit. It also shows total
sales which are simply the product of expected sales units and expected price per unit.
Sales Budget influences many of the other components of master budget either directly or
indirectly. This is due to the reason that the total sales figure provided by sales budget is used
as a base figure in other component budgets. For example, the schedule of receipts from
customers, the production budget, pro forma income statement, etc.
It is quite difficult to derive a sales forecast that proves to be accurate for any period of time,
so an alternative is to periodically adjust the sales budget with revised estimates, perhaps on
a quarterly basis. If this is done, the rest of the budget that is derived from the sales figures
will also have to be revised, which can require a significant amount of staff time.
The projected unit sales information in the sales budget feeds directly into the production
budget, from which the direct materials and direct labor budgets are created. The sales budget
is also used to give managers a general sense of the scale of operations, for when they create
the overhead budget and the selling and administrative expenses budget.

Sales = Units × Unit selling price.

Example of the Sales Budget

COPYKO Company plans to produce an array of plastic pails during the upcoming budget
year, all of which fall into a single product category. Its sales forecast is outlined as follows:

COPYKO Company
Sales Budget
For the Year Ended December 31, 20XX

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Forcasted unit sales 5,500 6,000 7,000 8,000
x Price per unit ₱ 10.00 ₱ 10.00 ₱ 11.00 ₱ 11.00
Total gross sales ₱ 55,000.00 ₱ 60,000.00 ₱ 77,000.00 ₱ 88,000.00
- Sales discounts and Allowances ₱ 1,100.00 ₱ 1,200.00 ₱ 1,540.00 ₱ 1,760.00
= Total net sales ₱ 53,900.00 ₱ 58,800.00 ₱ 75,460.00 ₱ 86,240.00

COPYKO's sales manager expects that increased demand in the second half of the year will
allow it to increase its unit price from P10 to P11. Also, the sales manager expects that the
company's historical sales discounts and allowances percentage of two percent of gross sales
will continue through the budget period.

In order to get the gross sales, simply multiply the forecasted unit sales to the price per unit
less the sales discount and allowances to get the total net sales.

This example of the sales budget is simplistic, since it assumes that the company only sells in
one product category. In reality, this example might have been a detail page that rolls up into
the main sales budget, where it would occupy a single line item. However, if a business sells
more than one product having different prices or the price per unit is expected to change during
the period, its sales budget will be detailed.

Once we get the sales budget prepared, now the next budget we need to work on is the
production budget. The number of units expected to be manufactured to meet budgeted sales
and inventory is set forth. The expected volume of production is determined by subtracting the
estimated inventory at the beginning of the period from the sum of units to be sold plus desired
ending inventory.
The production budget outlines the number of units that we need to produce to meet the
requirements we put together in the sales budget. This information needs to be completed
prior to moving forward. Without knowing how many of our products we need to make, it would
be impossible to move forward with the remaining budgets.

The production budget calculates the number of units of products that must be manufactured,
and is derived from a combination of the sales forecast and the planned amount of finished
goods inventory to have on hand (usually as safety stock to cover for unexpected increases
in demand). The production budget is typically prepared for a "push" manufacturing system,
as is used in a material requirement planning environment.
The production budget is typically presented in either a monthly or quarterly format. The basic
calculation used by the production budget is:

+ Forecasted unit sales

+ Planned finished goods ending inventory balance
= Total production required
- Beginning finished goods inventory
= Products to be manufactured

It can be very difficult to create a comprehensive production budget that incorporates a

forecast for every variation on a product that a company sells, so it is customary to aggregate
the forecast information into broad categories of products that have similar characteristics.
The planned amount of ending finished goods inventory can be subject to a considerable
amount of debate, since having too much may lead to obsolete inventory that must be
disposed of at a loss, while having too little inventory can result in lost sales when customers
want immediate delivery. Unless a company is planning to draw down its inventory quantities
and terminate a product, there is generally a need for some ending finished goods inventory.

Production Budget Example

As an example of a production budget, COPYKO Company plans to produce an array of
plastic pails during the upcoming budget year, all of which fall into the general Product A
category. Its production needs are outlined as follows:

COPYKO Company
Production Budget
For the Year Ended December 31, 20XX

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Forecasted unit sales 5,500 6,000 7,000 8,000
+ Planned ending inv. units 500 500 500 500
= Total production required 6,000 6,500 7,500 8,500
-Beginning F/G inventory 1,000 500 500 500
=Units to be manufactured 5,000 6,000 7,000 8,000

The planned ending finished goods inventory at the end of each quarter declines from an initial
1,000 units to 500 units, since the materials manager believes that the company is keeping
too many finished goods in stock. Consequently, the plan calls for a decline from 1,000 units
of ending finished goods inventory at the end of the first quarter to 500 units by the end of the
second quarter, despite a projection for rising sales. This may be a risky forecast, since the
amount of safety stock on hand is being cut while production volume increases by over 30
percent. Given the size of the projected inventory decline, there is a fair chance that COPYKO
will be forced to increase the amount of ending finished goods inventory later in the year.
FINANCIAL BUDGET

The financial budgets are the second part of the master budget. The financial budgets usually
include the cash budget, the budgeted balance sheet, the budgeted statement of cash flows,
and the budget for capital expenditures.
• Note that the master budget and the associated financial budget are plans for one
year.
• The capital expenditures budget is a financial plan outlining the expected acquisition
of long-term assets, typically over a number of years.

A. The Cash Budget

The cash budget is a detailed plan that shows all expected sources and uses of
cash. Much of the information needed to prepare the cash budget comes from the
operating budgets.
The cash budget includes five main sections:
1. The total cash available section shows that:

Total cash available = Beginning balance + Cash receipts

Cash receipts include primarily:

a. Cash sales.
b. Collection from sales on account (credit sales).
• The collection pattern of credit sales can be determined by past
experience using an accounts receivable aging schedule.

2. The total cash disbursements section includes all planned cash outlays for the
period, including the purchase of materials, payment of wages, and payment of
other
expenses.
The cash disbursements section does not include:
a. Interest payment on short-term loans (these appear in the financing
section).
b. Noncash expenses such as depreciation.

3. The cash excess or deficiency section compares the cash available with the
cash needed.

Total cash needed = Total cash disbursements + Minimum cash

balance

The minimum cash balance is the lowest amount of cash on hand that the firm
finds acceptable.
 4. The financing section of the cash budget consists of:
a. Borrowings.
b. Planned repayments, including interest.

5. The planned ending cash balance section reflects the inclusion of the minimum
cash balance, which was subtracted to find the cash excess or deficiency.

B. Budgeted Balance Sheet

The preparation of the budgeted balance sheet depends on information from the
current balance sheet and the information in the other budgets in the master
budget.

Example of the Cash Budget

COPYKO Company
Production Budget
Weekly Budget

Week 1 Week 2 Week 3 Week 4

Beginning cash ₱ 25,000 ₱ 55,000.00 -₱ 24,000.00 -₱ 63,000.00
Sources of cash
+ Cash sales 10,000 12,000 15,000 18,000
+ Accounts receivable collected 180,000 185,000 180,000 192,000
+ Asset sales 30,000 - 10,000 25,000
=Total cash available ₱ 245,000 ₱ 252,000 ₱ 181,000 ₱ 172,000
Uses of cash
- Direct materials ₱ 87,000 ₱ 91,000.00 ₱ 99,000.00 ₱ 107,000.00
-Direct labor 19,000 20,000 23,000 25,000
- Manufacturing overhead 29,000 30,000 34,000 37,000
-Selling & Administrative 35,000 35,000 38,000 38,000
-Asset purchases 20,000 - 50,000 -
- Dividend payments - 100,000 - -
= Total uses of cash ₱ 190,000 ₱ 276,000 ₱ 244,000 ₱ 207,000
Net cash position ₱ 55,000 -₱ 24,000 -₱ 63,000 -₱ 35,000

The example shows that all sources of cash are added to beginning cash equals to total cash
available less all the uses of cash to get the net cash position. The net cash position will the
beginning cash for the next week. The example also shows that an inordinately large dividend
payment in the second week of the cash budget, coupled with a large asset purchase in the
following week, places the company in a negative cash position. Paying out such a large
dividend can be a problem for lenders, who do not like to issue loans so that companies can
use the funds to pay their shareholders and thereby weaken their ability to pay back the loans.
Thus, it may be wiser for the company to consider a small dividend payment and avoid a
negative cash position.
PROJECTED FINANCIAL STATEMENT

Projected financial statements provide assumptions about a given company’s financial

situation in the future, whether it is an annual or quarterly projection. Preparing projected
financial statements is a lengthy task, as it requires analysis of the company’s finances,
reading previous budgets and income statements, and examining the company’s current
financial situation to make assumptions about the business’ financial potential. The process is
the same for smaller, sole-proprietor businesses and well-established corporations.

Projected financial statements are also called pro forma financial statements. The term pro
forma simply means “as a matter of form”. In the business world, pro forma, or projected
financial statements, are typically used to focus on certain figures, such as sales or profit.
Projected financial statements are most effectively used to examine the effects of a particular
decision. For example, if you are considering adding a new product line, you would use pro
forma financial statements to see how the addition would impact your business overall.
Projected financial statements look similar, if not, the same as regular financial statements.
So, when examining them, you’ll see the same accounts and structure as you would on your
normal statements.
Pro-forma financial statements can consist of a balance sheet, profit or loss, cash flow
statement or more. Most statements that are produced to reflect present financial information
can be translated to present future information. You can see what your business is projected
to look like at some point in the future. Planning never seemed so easy!
Let us explain. Financial forecasts are predictions of future financial performance based on
today’s facts. If nothing were to change in your business, what would your numbers look like?
That’s a financial forecast. At larger companies, financial forecasts are what’s provided to
external users. For example, if you are seeking outside funding from investors or banks,
financial forecasts are used to assess your company’s sustainability.
In general, you should expect the objectives in a forecast to be met.
Again, projections have a speculative element. An element that is not true today but if it was,
what would that look like. Below are examples of projected financial statements
Break Free: Escape Room Game
Income Statement
For the year ended December 31
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Service Revenue ₱ 2,357,200.00 ₱ 2,663,600.00 ₱ 3,010,000.00 ₱ 3,401,200.00 ₱ 3,843,400.00
Less:
Salaries & Wages Expense: 866,400.00 866,400.00 866,400.00 866,400.00 866,400.00
Utilities and Maintenance Expense 65,280.00 65,280.00 65,280.00 65,280.00 65,280.00
Research and Development Expense 118,074.00 123,977.70 130,176.59 136,685.41 143,519.68
Advertising Expense 6,400.00 6,400.00 6,400.00 6,400.00 6,400.00
Delivery Expense 15,000.00 15,000.00 15,000.00 15,000.00 15,000.00
Insurance Expense 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00
Miscellaneous Expense 5,000.00 5,250.00 5,512.50 5,788.13 6,077.53
Pre-Operating Expense 39,500.00 - - - -
Depreciation Expense 80,256.00 80,256.00 80,256.00 93,863.00 93,863.00
Total Expenses ₱ 1,215,910.00 ₱ 1,182,563.70 ₱ 1,189,025.09 ₱ 1,209,416.54 ₱ 1,216,540.22
NET INCOME Before Income Tax 1,141,290.00 1,481,036.30 1,820,974.92 2,191,783.46 2,626,859.78
Income Tax 342,387.00 444,310.89 546,292.47 657,535.04 788,057.94
NET INCOME After Income Tax ₱ 798,903.00 ₱ 1,036,725.41 ₱ 1,274,682.44 ₱ 1,534,248.42 ₱ 1,838,801.85
 Break Free: Escape Room Game
Balance Sheet
As of December 31

BEGINNING
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
BALANCE
ASSETS
Cash 650,000.00 698,871.90 1,729,720.36 3,024,289.70 4,482,466.22 6,329,925.57
Supplies - 467,906.60 504,039.55 514,408.65 566,298.55 601,504.05
Furnitures and Fixtures - 51,603.50 51,603.50 51,603.50 51,603.50 51,603.50
less: Accumulated Depreciation - 5,734.00 11,468.00 17,202.00 22,936.00 28,670.00
Property, Plant and Equipment 368,920.00 679,697.00 679,697.00 679,697.00 747,742.00 747,742.00
less: Accumulated Depreciation - 74,522.00 149,044.00 223,566.00 311,695.00 399,824.00
TOTAL ASSETS 1,018,920.00 1,817,823.00 2,804,548.41 4,029,230.85 5,513,479.27 7,302,281.12

LIABILITIES: - - - - -

PARTNERSHIP'S EQUITY:
Almairah M., Capital 150,000.00 267,610.26 420,231.48 607,883.47 818,747.39 1,074,446.05
Nur-hanisah B., Capital 300,000.00 535,220.53 825,462.96 1,185,766.94 1,622,494.78 2,148,892.10
Zahara B., Capital 200,000.00 356,813.69 545,308.64 780,511.30 1,071,663.19 1,422,594.73
Mahida P., Capital 368,920.00 658,178.52 1,013,545.32 1,455,069.14 2,000,573.91 2,656,348.24
TOTAL LIABILITIES & EQUITY 1,018,920.00 1,817,823.00 2,804,548.41 4,029,230.85 5,513,479.27 7,302,281.12

Break Free: Escape Room Game

Statement of Cash Flows
For the year ended December 31

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Initial Investment from Partners ₱ 650,000.00 - - - -
Revenue ₱ 2,357,200.00 ₱ 2,663,600.00 ₱ 3,010,000.00 ₱ 3,401,200.00 ₱ 3,843,400.00
Total Cash Receipts 3,007,200.00 2,663,600.00 3,010,000.00 3,401,200.00 3,843,400.00
Payments for Salaries and Wages 866,400.00 866,400.00 866,400.00 866,400.00 866,400.00
Payments for Miscellaneous Expense 5,000.00 5,250.00 5,512.50 5,788.13 6,077.53
Payments for Advertising Expense 6,400.00 6,400.00 6,400.00 6,400.00 6,400.00
Payments for Utilities and Maintenance Expense 65,280.00 65,280.00 65,280.00 65,280.00 65,280.00
Payments for Research and Development Expense 118,074.00 123,977.70 130,176.59 136,685.41 143,519.68
Payments for Delivery Expense 15,000.00 15,000.00 15,000.00 15,000.00 15,000.00
Payments for Insurance Expense 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00
Income Tax Payment 342,387.00 444,310.89 546,292.47 657,535.04 788,057.94
Total Cash Disbursements ₱ 1,438,541.00 ₱ 1,546,618.59 ₱ 1,655,061.56 ₱ 1,773,088.58 ₱ 1,910,735.15
Cash Flow from Investing Activities
Pre-Operating Expenses 39,500.00 - - - -
Payments for Assets 830,287.10 36,132.95 10,369.10 51,889.90 35,205.50
Acquisition of Equipment - - - 68,045.00 -
Total Cash Flow from Investing Activities ₱ 869,787.10 ₱ 36,132.95 ₱ 10,369.10 ₱ 119,934.90 ₱ 35,205.50
Cash Flow from Financing Activities
Partner's Drawing - 50,000.00 50,000.00 50,000.00 50,000.00
Total Cash Flow from Financing Activities - ₱ 50,000.00 ₱ 50,000.00 ₱ 50,000.00 ₱ 50,000.00
Net Cash Increase(Decrease) 698,871.90 1,030,848.46 1,294,569.34 1,458,176.52 1,847,459.35
Add: Beginning Balance - 698,871.90 1,729,720.36 3,024,289.70 4,482,466.22
Cash Balance ₱ 698,871.90 ₱ 1,729,720.36 ₱ 3,024,289.70 ₱ 4,482,466.22 ₱ 6,329,925.57
 What’s More

Activity 1
Our company, Mondragon Running Company makes the best running shoe ever. They have
tasked you with creating a sales budget for the shoe. Let’s start with some basic assumptions,
so we can start to build a budget.
Assumptions:
Mondragon plans to sell 2,000 pairs of shoes this year. The selling price of the shoes is P100
per pair. For simplicity, we are going to assume that all of the sales are cash sales, and that
sales are even each quarter.

All in 4 Quarters Q1 Q2 Q3 Q4
Budgeted sales in pairs ₱ 2000.00
Selling price per pair 100.00
Sales in Pesos

Guide question:
1. What is the sales budget in each quarter given that sales are even in each quarter?

Activity 2
Mondragon Company forecasts sales in units for January to May as follows:
Jan Feb Mar Apr May
Units 2,000 2,200 2,500 2,800 3,000

Moreover, Mondragon Company would like to maintain 100 units in its ending inventory at the
end of each month. Beginning inventory at the start of January amounts to 50 units.

Guide question:
1. How many units should Mondragon Company produce in order to fulfill the expected
sales of the company?
 What I Have Learned

Budget is the process of creating a plan to spend your money

Budgeting is simply balancing your expenses with your income
The master budget is a comprehensive financial plan made up of various individual
departmental and activity budgets for the year. A master budget can be divided into:
1. Operational Budget – which outline the income-generating activities of a firm (sales,
production, and finished goods inventories). It reflects the results of operating decisions,
consists of eight elements follows:
• Sales Budget (including a computation of “expected cash collection”)
• Production Budget
• Ending Inventory Budget
• Direct Materials Budget (including a computation of “expected cash
disbursements/payment for materials)
• Direct Labor Budget
• Factory Overhead Budget
• Selling and Administrative Expense Budget
• Pro Forma (or Budgeted) Income Statement

2. Financial budget – which outline the inflows and outflows of cash and the financial position.
It reflects the financial decisions of the firm, consists two of:

• Cash Budget
• Pro Forma (Budgeted) Balance Sheet
The major steps in preparing the budget are:
1. Prepare a sales forecast (Sales Budget)
2. Determine production volume (Production Budget
3. Estimate manufacturing costs and operating expenses (Direct Material, Direct Labor
and Factory Overhead Budget)
4. Determine cash flow and other financial effects (The Cash Budget)
5. Formulate projected financial statements (Budgeted Income Statement and Balance
Sheet

Operational Budget
A. The sales budget is the projection approved by the budget committee that describes
expected sales for each product in units and dollars for the coming period.
▪ The sales budget may reveal seasonal fluctuations in sales.

Sales = Units × Unit selling price

B. The production budget describes how many units must be produced to meet sales
needs and satisfy ending inventory requirements.
▪ The production budget must consider the company’s inventory policy and, thus,
the beginning inventory and desirable ending inventory levels.

Units to be produced = Ending inventory units + Units sales – Beginning inventory units
Financial Budget

A. The Cash Budget

The cash budget is a detailed plan that shows all expected sources and uses of
cash. Much of the information needed to prepare the cash budget comes from the
operating budgets.
The cash budget includes five main sections:
1. The total cash available section shows that:
Total cash available = Beginning balance + Cash receipts
2. The total cash disbursements section includes all planned cash outlays for the
period, including the purchase of materials, payment of wages, and payment of
other
expenses.
3. The cash excess or deficiency section compares the cash available with the
cash needed.
4. The financing section of the cash budget consists of:
5. The planned ending cash balance section reflects the inclusion of the minimum
cash balance, which was subtracted to find the cash excess or deficiency.

Budgeted Balance Sheet

The preparation of the budgeted balance sheet depends on information from the
current balance sheet and the information in the other budgets in the master
budget.

Projected financial statements are also called pro-forma financial statements. They are
typically used to focus on certain figures, such as sales or profit. Projected financial statements
are most effectively used to examine the effects of a particular decision. Pro forma financial
statements can consist of a balance sheet, profit or loss, cash flow statement or more

What Can I Do

1. MOR-DAN Company produces and sells laptop computers. It had 2,000 computers in
finished goods inventory at the end of the last year. The company expects to sell
20,000 computers and would like to complete operations in this year with at least 2,500
completed computers in inventory. There is no ending work-in-process inventory in
either year. The laptop computers sell for P2,000 each. How many laptop computers
would be produced for the next year?

Required:
1. Prepare a production budget.
 2. L&V Company has observed its accounts receivable collection pattern to be as
follows: 40% in the month of the sale, 45% in the month following the sale, and
13% in the second month following the sale. Sales for the last three months of the
year were as follows: October, P300,000; November, P450,000; and December,
P625,000. Sales for January are budgeted to be P375,000. What are the budgeted
cash collections for January?

Required:
1. Prepare cash collection budget

Assessment

Perform the following using a separate answer sheet.

MYKUELL Company has the following projected account balances for June 30, 20XX.

Accounts payable ₱ 40,000.00 Sales ₱ 80,000.00

Accounts receivable 100,000.00 Capital stock 400,000.00
Depreciation, factory 24,000.00 Retained earnings ?
Inventories 180,000.00 Cash 56,000.00
Direct materials used 200,000.00 Equipment, net 240,000.00
Office salaries 80,000.00 Buildings, net 400,000.00
Insurance, factory 4,000.00 Utilities, factory 16,000.00
Plant wages 140,000.00 Selling expenses 60,000.00
Bonds payable 160,000.00 Maintenance, factory 28,000.00

Required:
A. Prepare a budgeted income statement for June 20XX.
B. Prepare a budgeted balance sheet as of June 30, 20XX.
 Additional Activities

ALS Company has forecasted sales for the month of March for its single product to be 10,000
in Luzon 13,000 units in Visayas and 15,000 units in Mindanao. The estimated inventory on
March 1 is 4,500 units and the company desires to have 3,800 units on hand March 31. The
budgeted sales price is P52.00 per unit.

(1) Prepare a sales budget for the month of March.

(2) Prepare a production budget for the month of March.

Answer Key

10. C
9. B
8. A
7. A
6. A
5. A
4. B
3. B
2. A
1. A

What I Know
What’s New
Category Total Amount Spent
Automobile PhP 0.00
Clothing 1,500.00
Computer 0.00
Donations/Gifts 0.00
Entertainment 0.00
Foods 5,000.00
Household/Rent 0.00
Personal Care 300.00
Recreation 100.00
Savings 300.00
School 1,000.00
Transportation 500.00
Other 0.00
TOTAL PhP 8,700.00
1. Needs – PhP8,600.00
Wants – PhP 100.00
2. To the needs of the family.
Note: Answers may vary
What’s In
Simple Event Budget
Income
Registration Fees P56@100 5,600.00
Total Income
Expenditure
Hotel Accommodation 1,000.00
Speaker 600.00
Advertising 1,000.00
Photocopying and printing 500.00
Flowers and shrubs 200.00
Table linen 100.00
Giveaway stationery 200.00
Food and refreshments 1,000.00
Total Expenditure 4,600.00
Profit 1,000.00
What Can I Do
1.
Forecasted unit sales ₱ 20,000.00
+ Planned ending inventory units 2,500.00
= Total production required 22,500.00
-Beginning finished goods inventory 2,000.00
= Units to be manufactured ₱ 20,500.00
2.
November ₱ 450, 000.00 13% ₱ 58, 500.00
December 625, 000.00 45% 281, 250.00
January 375, 000.00 40% 150, 000.00
Total Budgeted Cash Collections ₱ 489, 750.00
What’s More
Activity 1
All in 4
Q1 Q2 Q3 Q4
Quarters
Budgeted sales in pairs ₱ 2000 500 500 500 500
Selling price per pair 100 100 100 100 100
Sales in Pesos ₱ 200,000.00 ₱ 50,000 ₱ 50,000 ₱ 50,000 ₱ 50,000
Activity 2
Jan Feb Mar Apr May Total
Projected Sales 2,000 2,200 2,500 2,800 3,000 12,500
Target Level of Ending
Inventories 100 100 100 100 100 100
Total 2,100 2,300 2,600 2,900 3,100 12,600
Less: Beginning
Inventories 50 100 100 100 100 50
Required Production 2,050 2,200 2,500 2,800 3,000 12,550
Assessment
A. Budgeted Income Statement
MYKUELL Company
Income Statement
For the Month of June 20XX
Sales ₱ 800,000.00
Cost of goods sold:
Materials used 200,000.00
Wages 140,000.00
Depreciation 24,000.00
Insurance 4,000.00
Maintenance 28,000.00
Utilities 16,000.00 412,000.00
Gross Profit ₱ 388,000.00
Operating Expenses:
Selling
expenses 60,000.00
Office
salaries 80,000.00 140,000.00
Net income ₱ 248,000.00
B. Budgeted Balance Sheet
MYKUELL Company
Balance Sheet Statement
For the Month of June 20XX
Assets:
Cash ₱ 56,000.00
Accounts Receivable 100,000.00
Inventories 180,000.00
Equipment, net 240,000.00
Buildings, net 400,000.00
Total Assets ₱ 976,000.00
Liabilities and Equity
Accounts payable ₱ 40,000.00
Bonds payable 160,000.00
Capital stock 400,000.00
Retained earnings 376,000.00
Total Liabilities and Equity ₱ 976,000.00
Additional Activities
1.
ALS Company
Sales Budget
For the Month Ended March 31, 20--
Unit
Units Selling Total Sales
Price
LUZON ₱ 52.00 ₱ 520,000.00
₱10,000.00
VISAYAS
13,000.00 52.00 676,000.00
MINDANAO
15,000.00 52.00 780,000.00
₱38,000.00 ₱1,976,000.00
2.
Bradley Company
Production Budget
For the Month Ended March 31, 20--
Sales
₱38,000
Plus desired ending inventory, March 31
3,800
Total
₱41,800
Less estimated beginning inventory, March 1
4,500
Total production
₱37,300
 References

Online References:
• https://www.practicalmoneyskills.com/assets/pdfs/lessons/lev_5/L5Activities3.pdf.
Retrieved on July 15, 2020

• http://accounting-financial-tax.com/2010/08/how-to-make-budgets-complete-steps-
with-examples/. Retrieved on July 15, 2020

• https://xplaind.com/554580/sales. Retrieved on July 15, 2020

• https://www.accountingtools.com/articles/2017/5/17/sales-budget-sales-budget-
example.Retrieved on July 15, 2020

• https://bizfluent.com/how-8666606-prepare-projected-financial-statements.html.
Retrieved on July 16, 2020

• https://www.scribd.com/document/419009435/Projected-financial-statement-sample.
Retrieve on July 16, 2020

Book References:
• Teaching Guide for Senior High School BUSINESS FINANCE – Published by
Commission on Higher Education, 2016 ©, Chairperson: P.B. Licuanan, Ph. D.
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