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Other Budgets

We would also prepare the following budgets, but they are not included in our example:

1. the capital expenditures budget
2. financial budget
   • Cash budget
   • Budgeted balance sheet
   • Budgeted statement of cash flows

Capital Expenditures Budget

A capital expenditure is money spent by a company to purchase or upgrade long-term tangible assets, such as buildings, equipment, and machinery. A capital expenditure could also include the firm's projects or investments, such as building a new factory. A capital expenditures budget is the company’s plan for capital expenditures; it takes into account cash flows and the potential profitability of the company’s plans. This is a subject covered in detail in finance courses.

Cash Budget

Investopedia (2016, para. 1) defines a cash budget as

an estimation of the cash inflows and outflows for a business or individual for a specific period of time. Cash budgets are often used to assess whether the entity has sufficient cash to fulfill regular operations and/or whether too much cash is being left in unproductive capacities.

You would prepare a couple of schedules to help analyze cash inflows and outflows for each period. These schedules include

• a schedule of cash receipts from customers and
• a schedule of cash payments.

The schedule of cash from customer receipts is where you would break down the expected cash inflows for a month or quarter, which come from sales (cash and on account). You would start with budgeted sales (cash and on account) and analyze when the company expects to receive the cash inflow from the sales.

The schedule of cash payments is used to analyze all of the company's cash outflows. Much of the information for this budget will come from the following budgets:

• direct materials,
• direct labor,
• factory overhead,
• selling and administrative expenses, and
• capital expenditures.

Budgeted Balance Sheet

The budgeted balance will include all of the line items that appear on the previous year’s balance sheet. The information needed to prepare a budgeted balance sheet will come from the budgets already created by the company. Here is a brief summary of where balance sheet items come from:

• Cash and accounts receivable come from the cash budget.
• The direct materials inventory comes from the direct materials budget or the budgeted cost of goods manufactured.
• The work in process inventory comes from the budgeted cost of goods manufactured.
• The finished goods inventory comes from the production budget or the budgeted income statement.
• Plant assets come from the ending balance from last year’s balance sheet, plus or minus adjustments from the capital expenditures budget.
• Accounts payable comes from the cash payments budget.
• Common stock comes from the ending balance of last year’s balance sheet.

Budgeted Statement of Cash Flows

The information for the statement of cash flows will come from the cash budget and will show the company's expected cash flows for the year, which come from

• operating activities,
• investing activities, and
• financing activities.

Reference

Investopedia, LLC. (2016). Cash budget. In Investopedia: Dictionary. Retrieved from http://www.investopedia.com/terms/c/cashbudget.asp