YEAR OF UNITY, PEACE, AND DEVELOPMENT

NATIONAL UNIVERSITY OF THE PERUVIAN AMAZON

FACULTY OF ECONOMIC AND BUSINESS SCIENCES

MONOGRAPHY:
BUDGET AND MASTER BUDGET
Concept of Operating Budget, Cash, and Balance

NAME OF THE
SUBJECT: COST ACCOUNTING II
2023-I
academic_level IV
CYCLE: Cycle VII
FACULTY: Faculty of Economic Sciences and
Business
RACE
PROFESSIONAL: Accounting
TEACHER: CPC Carlos Ramírez Hidalgo, Dr.
STUDENTS: Angelica Gabriela Dávila
Manuyama
Vianka Melissa Ortiz Dávila
Odalis Valeria Saavedra Moreno
Renzo Andre Tafur Sanchez
Maricielo Tang Vela
Denis Eliezer Yaicate Flores

DELIVERY DATE: 04/09/2023

2023
Iquitos - Peru

1
 DEDICATION

We dedicate this work to God, our Almighty Father, for having us

allowed to come this far and having given us health, being the spring of life and
give us what we need to move forward day by day to achieve all our
objectives. To our teacher, for his great support and motivation in development
our professional training, for the support provided in the development of this work,
for sharing your knowledge with us and for guiding us in this process of
learning

2
 GRATITUDE

To our family, for supporting us at all times, for their advice, for
its values, for the constant motivation that has allowed us to be good people,
for your unconditional love and for being a great support in our personal development
and professional.

3
 INDEX
DEDICATION .................................................................................................................. 2
ACKNOWLEDGMENT .......................................................................................................... 3
INTRODUCTION............................................................................................................... 5
THE BUDGET .......................................................................................................... 6
1. DEFINITION ON BUDGET................................................................. 6
2. IMPORTANCE OF THE BUDGET.................................................................... 7
3. PURPOSES MAIN POINTS OF THE BUDGET............................................. 7
4. ADVANTAGES OF THE BUDGETO .......................................................................... 7

5. DISADVANTAGES OF THE BUDGET................................. 8

6. CLASSIFICATION OF THE BUDGETS......................................................... 9

MASTER BUDGET ........................................................................................... 10
7. DEFINITION OF MASTER BUDGET ..................................................... 10
8. PARTIES WHAT IS INCLUDED IN THE MASTER BUDGET ................................ 10
8.1. OPERATIONAL BUDGET.................................................................... 11
8.2. BUDGET FINANCIAL ..................................................................... 19
PRACTICAL APPLICATION CASE (MASTER BUDGET) .............................. 25
CASE DEVELOPMENT: ............................................................................................ 26
CONCLUSIONS ............................................................................................................ 35
RECOMMENDATIONS

4
 INTRODUCTION

All organizations make plans. It is unthinkable to conceive any.

organization, whose executives are not thinking about the future, that is, what are
its objectives and what would be the best method to achieve them.

Currently, companies have to make use of strategic planning.

that allows them to achieve the proposed objectives and goals, for which it must be done
use of a tool that contributes to this, such as the Master Budget.
The preparation of a master budget involves a realistic contribution and knowledge.
of all those involved in its preparation, be they directors, managers, heads,
etc. To determine the corresponding sales and production action plans
and operations which must be reflected in monetary units.
A master budget can be designed for a certain period of time such as
It can be for a month, quarterly, semi-annually, annually, etc. Which depends on the
nature and the culture of the entity in question, such as for example if it is about
an industrial company includes the production budget which is divided into
budget for raw materials, labor, indirect manufacturing costs, this
the difference between preparing a master budget that focuses on service provision
of services, or that the company belongs to the commerce sector on which it is based
research; which exclude industrial budgets.
The importance of the budget lies in its ability to make financial decisions.
preventive when elaborating or corrective at the moment of exercising control between
planned and executed, which can generate differences or deviations
which must be analyzed to determine if they are controllable internal causes
due to the organization or external events beyond internal control, such as: the
inflation or deflation, economic recession, free trade agreements, new
regulations to local laws, etc.
In the following monographic work, we will delve into the definition of
master budget and its components, which will be explained in the
development of a practical case.

5
 THE BUDGET
1. DEFINITION OF BUDGET
A budget is an integrative and coordinating plan that is expressed in terms
financial, the operations and resources that are part of a company for a
fixed period, in order to achieve objectives set by senior management.
The main elements of a budget are:
It is a plan: It means that the budget expresses what the administration
it will aim to be carried out in such a way that the company can grow in a
determined period.

Integrator: Indicates that all areas and activities are taken into account.
the company. This process is called Master Budget. The
the budget of a department in the company is not functional if it is not
identify with the overall objective of the organization.

Coordinator: It means that the plans for several of the departments of

the company must be prepared jointly and in harmony. If these
plans are not coordinated, the master budget will not be equal to the sum
from the parties and will create confusion and error.

In financial terms: It reflects the importance of the budget

sea represented in the currency unit to serve as a means of
communication, otherwise problems would arise in the analysis of the
master plan.

For example, when making the raw material requisition budget, first
it is necessary to express it in tons or kilograms, and then in soles; the
labor budget, first in man-hours and then in soles.

Operations: One of the fundamental objectives of a budget is

determine the income that is intended to be obtained, as well as the expenses that
they are going to be produced.

Resources: It is not enough to determine future income and expenses;

the company must also plan the necessary resources to carry out its
operation plans, which is basically achieved through planning
financial, which includes the cash budget and the budget of
additions of assets (inventory, accounts receivable, fixed assets).

Within a future period: Once a budget is determined, it always has

to be in function of a certain period.

6
In other words, a budget consists of quantifying in monetary terms
the anticipated decision-making and the set objectives, in such a way that they allow
visualize its effect on the company and serve as a control tool
administrative.

2. IMPORTANCE OF THE BUDGET

It is a modern tool for the planning and control of activities, that
they reflect the behavior of economic indicators such as fluctuations in
the inflation and devaluation indices and interest rates, which allows the entity
staying in the competitive market, as it reduces uncertainty in
the risks taken and therefore grants greater accuracy in the results
business outcomes.

3. MAIN PURPOSES OF THE BUDGET

Forecasting the future growth of the organization and its environment:

The inherent lack of certainty in any business entails the need for
to forecast your future in order to make the most accurate decisions in the
precise moment and handle these events as efficiently as possible.

Coordinate the various activities and tasks of the company:

Specialization and division of labor gave rise to the need for
ensure appropriate cooperation among the various departments of a
company, as well as the interrelation between the different members that
component (that is, the coordination among them).

Motivate employees in order to achieve the greatest benefit for the

companies are as important as the two previous points.

4. ADVANTAGES OF THE BUDGET

Among the advantages of the budget, we can mention the following:
a) It allows to determine if the resources will be available to execute the
activities and the achievement of the same is sought.

b) It allows choosing those decisions that bring greater benefits to the

entity.

7
c) Provides a basis for decision-making and policy setting to follow
(financing, purchases, investments, production, sales, etc.), which
They can be redefined if, after evaluating them, they are not appropriate.
to achieve the proposed objectives.

d) It helps in the proper planning of production costs.

seeks to optimize results through the proper management of resources,

f) Helps to optimize resources.

g) It facilitates effective monitoring of each of the functions and activities of the

company.

h) Warns against exaggerated or unrealistic optimism, which could bring

negative consequences.

i) Conduct the workforce in a more productive manner.

j) Based on the measurement, the evaluation is made of what has been done against what
budgeted, through analysis, review, and interpretation, for the
formation of a trial, as well as proceeding to what is relevant, which will serve in
future decisions, efficiency, effectiveness, and of course at an optimal cost.

5. DISADVANTAGES OF THE BUDGET

Among the disadvantages of a budget, we can point out the
next:
a) To be based on estimates or forecasts, which are subject to
errors, and unforeseen events.

b) The accuracy of your data depends on the judgment or experience of those who
determined.

c) It is just a management tool, a budget plan is

design it to serve as a guide for the administration and not to replace it.

d) When it has been exercised for some time in budgetary control,

one can trust him too much, falling into mistakes, for not reviewing it,
surpass it and update it.

8
e) Its implementation and operation requires time, therefore, the results
they may not be immediate.

6. CLASSIFICATION OF BUDGETS
a) According to its flexibility

Rigid, Static, Fixed or Assigned.

Generally, they are prepared for a single level of activity. Once reached
These adjustments required by the changes that occur are not allowed.
Flexible or Variable
They are developed for different activities and can be adapted to the circumstances.
that arise at any moment.

b) According to the period they cover

Short Term
Regarding the company's mission, planning is done for a maximum of one year.
In the Long Term

It is related to the company's vision, it is planned over a period of more than

one year. They are used by large companies and states.

c) According to the field of application

Of Operation or Economic
Include budgeting for all activities for the period following the
which is prepared and whose content is often summarized in a profit and loss statement
and projected earnings.
Financial
Includes the calculation of items and/or categories that fundamentally impact the
balance. In this case, it is worth highlighting the cash or treasury and the capital.
also known as capitalizable expenditures.

9
 d) According to the sector

Public Sector Budgets

They quantify the resources required for current expenses, capital expenses and
debt service expenses.
Private Sector Budgets
It is used by private companies as a planning base for the
business activities.

MASTER BUDGET
7. DEFINITION OF MASTER BUDGET
The master budget consists of a set of budgets that aim to, by
on one side, the determination of the profit or loss that is expected to be incurred in the future and,
on the other hand, prepare budgeted financial statements that allow
administrator to make decisions about a future period based on plans
operational for the coming year.
Within the master budget, the objectives and goals are quantified that
establish the company for the future, currently due to the uncertainty that
We are surrounded, it is recommended that this be for one year; for this, a must be carried out
analysis of all macroeconomic and microeconomic factors that affect the
company and due to the complexity of the economic situation it is going through
Most companies consider that its formulation is necessary to achieve
economic growth.
8. PARTS THAT MAKE UP THE MASTER BUDGET
The sequence for the preparation will be shown in a graph below.
master budget

10
The master budget is composed of two areas that make it up:
The operating budget.
The financial budget.

8.1. OPERATION BUDGET

The operating budget forms the first part in the realization of a

master budget. Here the items that make up or
they directly influence the company's profits, specifically the profit of
operation or utility before financial expenses, taxes, and distribution of
utilities/dividends. The different budgets that make up the budget
of operation are:

Sales Budget
Production Budget
Raw material budget
Labor budget
Indirect manufacturing expense budget
Sales Cost Budget
Operating expenditure budget

The implementation of all these budgets must lead to the formulation

of a "budgeted income statement of the operation" (that is, without
include the budget for financial expenses and taxes).

11
As will be seen later, the operating budget is fundamental for the
the preparation of the master budget, as this is where all the assumptions of
the operation turns into possible financial results for the company.

8.1.1. Sales Budget

The first stage that the organization will face is the determination of
behavior of its demand; that is, to know what is expected to be done
market. It will be determined:

The estimated sales amount

The expected unit selling price

Once this stage is completed, a production budget will be prepared. This is

what is normally done, since in most companies the demand is
less than the capacity to produce.

There are exceptional cases of companies that prepare their budget of

production as the first step. Another special case is the public sector, where the
the process is reversed: first, the expenses or needs of the sector are budgeted and,
based on this, the revenues that will be collected through
tax

To develop the sales budget, the following sequence is recommended:

1. Clearly determine the objective that the company wants to achieve regarding the
sales volume in a given period, as well as the strategies that
they will be developed to achieve it.

2. Conduct a study of the future demand, supported by methods that

guarantee the objectivity of the data, such as regression analysis and
correlation, industry analysis, economic analysis, etc.

3. Prepare the sales budget (considering the forecasted data and

the professional judgment of sales executives) distributing it in zones,
divisions, lines, etcetera.

The sales budget is considered the foundation of the master budget, because
which must be determined based on logical and reliable assumptions.

Once the sales budget is accepted, it must be communicated to all areas.

from the organization to plan the production budget.

12
8.1.2. Production budget

Once the sales budget is determined, the plan must be developed.

of production. This is important since the entire requirements plan depends on it.
regarding the different inputs or resources that will be used in the process
productive.

To determine the amount that should be produced for each of the lines of
products sold by the organization, the following variables must be considered:

Budgeted sales for each product line.

Desired ending inventories for each type of line
Initial inventories available for each line.

The budgeted production volume is determined as follows:

Inventory Policies

There is a need to know the inventory levels at the beginning and at the end of the
productive period; however, within that period, it is necessary to determine which
It is the desired policy of each company regarding production.

The most common policies are:

a) Stable production and variable inventory.

ADVANTAGES DISADVANTAGES
Production costs tend to be An inventory can be reached
minors. too high, what it brings for
consequence of idle overinvestment
what creates an opportunity cost of
to have the money in another investment
productive.

Improves employee morale by not It can lead to obsolete inventories,

there is an accelerated rotation. that for seasonal reasons cannot
to sell at a reasonable price.

Working at a fast pace is not required. A problem could also arise from
forced during peak demand months storage in the months in which
sales are decreasing.

13
 b) Variable production and stable inventory.

It is not easy to apply because it involves stopping and starting the

machinery, which is very costly compared to the benefit of having a
stable inventory.

In Peru, due to the fact that most companies have idle capacity and the workforce
the work is not temporary, nor seasonal, but is permanent, the alternative of
variable production is not very appropriate, so the most common is production
stable

c) Combination of the two previous ones.

Flexible production can be achieved, tailored to sales cycles and to the

inventory levels, but trying to maintain, as much as possible, the
production subject to minor variations.

8.1.2.1. Budget for direct material requirements and purchases

The production budget provides a framework for diagnosis.

the needs of the different inputs.

The amount of raw material needed to meet the requirements of

production must be based on the usage standard that has been determined
for each type of input per product, as well as the budgeted quantity for
produce in each product line.

It is determined by the following formula:

The raw material requirements budget should be expressed in units.

monetary once the purchasing department defines the price at which it will go
to acquire (cost of the budgeted material).

14
This budget only includes direct materials, as the materials
indirect costs (lubricants, accessories, etc.) are included in the expenses budget
indirect manufacturing costs.

The benefits of the raw material requirements budget are:

Indicate the raw material requirements for a certain period.

budgetary, thus avoiding bottlenecks in production due to lack of
supply.
Generate information for purchases, which allows this department
plan their activities.
Determine adequate inventory levels for each type of raw material.
Exerts administrative control over the efficiency with which it is managed
raw material.

The purchasing manager is responsible for the budget of their area. Based on the
budget of raw material requirements and the inventory policies that are
Establish for each raw material, will determine the number of units, and the
time in which the purchases will be made and the cost that will be incurred
when performing these operations, what will be the quantity of each raw material that is
will buy at the standard price at which it is planned to acquire.

8.1.2.2. Direct labor budget

This budget aims to diagnose the needs of human resources.

(basically direct labor) and how to act accordingly.
diagnosis, to meet the requirements of the planned production.

It should allow for the determination of the standard in labor hours for each
type of line produced by the company, as well as the quality of labor that is
requires, which allows to detect if more human resources are needed or if
the current ones are sufficient.

The labor requirements for each product unit are estimated.

both in terms of hours, cost of direct labor; as well as in the number
of workers needed to meet the budgeted production.

To determine the number of hours of labor:

15
To obtain the labor cost, it is necessary to perform the following calculation:

To define the number of workers:

8.1.2.3. Budget for indirect manufacturing costs

The budget must be developed with the participation of all centers in the area.
productive that carry out any indirect productive expenditure. The estimation of
the budget usually includes the cost of indirect manufacturing expenses, with its
corresponding classification into fixed and variable.
Indirect manufacturing costs are all those that cannot be quantified.
with accuracy and that are necessary for the development of a product, such as
indirect raw materials, indirect labor, and other manufacturing expenses
indirect costs (maintenance of production equipment, consumption of electrical energy,
rental of production area among others).
It is important that when preparing this budget, the
behavior of each of the items of indirect expenses, so that
variable manufacturing costs are budgeted based on the volume of
previously determined production, and fixed manufacturing costs are planned
within a certain section of capacity, regardless of the volume of
budgeted production.
When the manufacturing expense budget has been prepared, it must be calculated
the application rate both in its variable part and in its fixed part, and choose one
appropriate basis for the structure of the manufacturing expense budget
indirect

16
For its preparation, the formula for the flexible budget can be used:
Y = a + b(x)
Where:
And it is equal to the budget for indirect manufacturing costs.
Fixed expenses
What are variable expenses?
x is the production budget.
Having:

In the context of developing the master plan, it is very important to use the
flexible budgeting, which consists of budgeting according to different levels of
activity both income and expenses, according to the behavior that
manifest in accordance with a specific activity.
Especially under the current circumstances, this tool is essential for
adapt to changes, as it helps to detect areas where one is
incurring excessive costs.
The use of flexible budgeting becomes important when it is used as
control tool. It allows comparing the real with what should have happened,
and thus be in a position to make a good diagnosis of the company and
to undertake appropriate actions, since the use of the fixed budget does not
help with a correct evaluation.

8.1.3. Operating Expenses Budget

This budget aims to plan the expenses that will be incurred in the functions.
of distribution and management of the company to carry out the activities
own to their nature.
Just like indirect manufacturing costs, the expenses of
administration and sales must be separated in all items in expenses
variables and fixed costs, to apply the flexible budget to these areas using
activity-based costing.

17
The volume according to which the variable items will change will not be the production volume,
but rather its cost-generating function. The basic idea is that after
determine the different levels of activity to prepare the budget for
operating expenses through the use of the flexible budget, in which also
Is activity-based costing useful for determining what adds value to the product or
service.

8.1.4. Budgeted cost of sales

Once the production cost structure has been calculated (raw material,
labor and indirect manufacturing costs), it is possible to obtain the cost of
sales that the company will have during the budget period, based on
next:
The expected sales for the budget period.
The raw material inventory policy.
The cost of direct labor.
Indirect manufacturing costs.
The finished goods inventory policy.
The cost per unit assigned to the product.
In the case of calculating the cost per unit, there are two ways to determine it:
using absorptive costing or resorting to direct costing. Depending on
whichever method is used, the amount of the cost of sales will change.

Direct / variable costing: Direct costing is a method of cost analysis that

Separate the general manufacturing expenses into fixed and variable. The variable costs
(that increase with sales volume) are treated as product costs; the
fixed costs (do not change with the volume of production) are considered expenses of
period.
Absorption costing: Method that aims to include all costs of the product within its cost.
the costs of the productive function, regardless of their fixed behavior
y variable.

18
Since the budget is internal information, the use of direct costing
it is simpler and allows the administrator to have more user-friendly information
for the decision-making process.

8.1.5. Budgeted Income Statement

After obtaining the sales, production, and purchase budgets,
requirements for raw materials, labor, and indirect manufacturing costs,
cost of sales and operating expenses are summarized in a report that allows
the administration to know where the company's efforts are directed, the
which is achieved through the budgeted income statement.

8.2. FINANCIAL BUDGET

The master plan must culminate in the preparation of the financial statements.
budgeted, which are a reflection of where the administration wants to place the
company. Apart from the budgeted annual financial statements, they can
to prepare monthly or quarterly financial reports, or when deemed appropriate
convenient, which allows taking timely corrective actions in each
situation.
The essence of the financial budget arises from the information generated by the
operating budget. The sales budget, the production cost budget and the
operating expenses produce the projected income statement; in summary,
the operating budget gives rise to the budgeted income statement.
The financial budget, along with certain data from the income statement
budgeted, expresses the budgeted financial situation and the state
of budgeted cash flow.
The income statement, the statement of financial position, and the statement of cash flow
Budgeted cash indicates the projected financial situation. With that
Reports conclude the preparation of a company's master budget.

8.2.1. Cash / Cash Budget

This budget is usually developed by the company's treasurer, who
depends on the finance director and is responsible for liquidity management
of the company. The cash budget could be defined as a forecast of
the cash inflows and outflows that diagnose future shortages or surpluses
and, consequently, compels planning the investment of surpluses and recovery
obtaining the missing items.

19
For a company, it is vital to have timely information about behavior.
of its cash flows, as it allows for optimal management of its liquidity
and avoid serious problems due to its absence. Insolvency could lead to bankruptcy.
and the intervention of creditors, especially at a time when the resource
the scarcer and more expensive cash is.

It is easier for a company to go bankrupt due to lack of liquidity than due to lack of
profitability, which demonstrates the importance of good management of the
liquidity. Therefore, it is necessary to understand the behavior of cash flows,
what is achieved through the cash budget.
The liquidity of an organization is equal to its ability to convert an asset into
effective, in general, to have the appropriate means of payment and to comply
timely with the commitments made in the short term.
The liquidity of a company is based on two dimensions:
The time necessary to convert the asset into cash.
The degree of security associated with the price at which the asset will be realized.

Cash flow is a very interesting method because it sections the inflows and
cash outflows in three categories: operation, financing, and investment, which
allows for a clear overview of cash movements in each activity,
achieves better management and evaluation of cash.

Objectives of the cash budget

The objectives of the cash budget are:
Diagnose what the cash flow behavior will be through the
period or subsequent periods.
Detect periods where there will be cash shortages and surpluses and by how much.
they will rise.
Determine if the collection and payment policies are optimal, by performing
a review that will free up resources to be channeled to finance the
missing items detected.
Determine if the amount of resources invested in cash is optimal in order to
detect whether there is over or underinvestment.
Set dividend policies in the company.
Determine if investment projects are profitable

20
Methods for preparing the cash budget
a) Cash inflow and outflow method
It consists of conducting a careful investigation of the different transactions.
that will cause cash inflows and outflows, and try to distinguish those that are
normals from those that are not. This division between normals and exceptional detects
if the increase or development of the company's liquidity is financed with resources
normal or extraordinary.
Normal transactions refer to the inflows or outflows of cash,
generated by the company's own activities according to its business line in the
which is working and that are repetitive.

ENTRANCE EXITS
Normals Normals
Cash sales and collection from customers Payments to suppliers, payroll payments and
benefits, tax payment and
any other specific payment you have
relationship with the operations of the
company
Exceptional Exceptional
Interest charged on investments, Included as payments for
sale of non-current assets, obtaining dividends, acquisition of non-assets
of loans or new contributions from circulating, payment of short-term liabilities and
the shareholders long term, etcetera
It is necessary to conduct an analysis of all the company's clients and group them.
according to the credit conditions they have chosen to determine
When will the collections take place according to the credit policies.
Once the total exits are determined, it is compared with the total entries.
which yields the cash balances. The classification of inflows and outflows in
normals and exceptionals fundamentally reside in the characteristic of the
repetitiveness of said operation. Based on this principle, each company must
adopt the classification that it considers appropriate to prepare its budget for
cash.

b) Projected balance method

This method consists of preparing a cash flow statement through the
comparison between a current year's balance sheet and another forecasted one for the
next period. The technique is very varied and changes in every circumstance. Without
embargo can be elaborated as follows:

21
 Determine the profit or loss for the following period by means of the
preparation of a budgeted income statement. This
the state can be elaborated with all the budgeting techniques or just
forecasting sales, and based on that estimate and the percentages
expense integrals, determine the utility.

Estimate the figures of the items that make up the

working capital: accounts receivable or customers, accounts payable or
suppliers and inventories.

Estimate the amounts of fixed assets based on current figures and the
new investment projects. Likewise, consider the increase of the
accumulated depreciation due to the passage of time.

Adjust the liability and equity accounts in accordance with loans.

concerted or new capital emissions, or by payments that are due
carry out during this period.

Present a balance sheet with the obtained data. If the liabilities section
and capital is greater than that of assets, this means that there is a surplus and,
therefore, this surplus must be added to the cash. If, on the contrary, the
the assets section is greater than that of liabilities and equity, the conclusion is that
There is a missing source and, for that reason, there is a cash shortfall.

The presentation of the cash budget. Before talking about the

Formal presentation of this statement, it is clarified that the data was obtained
through the comparison of the two balance sheets, similarly to
the determination of a cash flow state. It is even advisable
show the sources of cash income and their applications.

c) Method of budgeted income statement

This method consists of taking the estimated income statement for the next
period and add or subtract from the profit the items that affect the state of
cash and that are not included as sales or expenses. The items included in the
Income statements and that do not involve cash movement are the
depreciations and amortizations.
The items that are not included in the income statement and that affect the
cash status mainly refers to investments in fixed assets or in capital in
work, the dividends payable, the loans that are expected to be obtained, the
capital contributions, etc. An easy way to calculate the needs of
capital and work for the next year is to determine the relationship of working capital

22
Regarding sales. This report will inform about the new investments that will
they must do for that concept.

8.2.2. Budgeted Balance Sheet or Financial Position Statement

Short-term planning is the design of actions whose purpose will be to change the
company in the way it has been defined. That design of activities,
When referring to the master budget, it should be aimed at achieving a
favorable situation for the company during that period, which can be seen
printed through the preparation of the budgeted financial statements, which
They will serve as a guide during the considered period.

From the above, the importance of carefully preparing the statements is inferred.
projected financials, because they will be the reference point for all the
organization. When analyzing how the income statement is prepared
it was observed that the budgeted amount is practically the integration of the different
budgets that make up the operating budget. Now the analysis will be conducted.
methodology for preparing the balance sheet or financial position statement
budgeted, that is, how to determine each item in the balance sheet.

Current Assets
Cash: The amount is obtained from the cash budget when it has been
determined the final balance, through rotations or another established policy.

Clients: This balance is obtained as follows:

Initial accounts receivable + credit sales of the budget period - collections
made during the same period
Inventories: The balance of raw material inventories and items
finished is obtained from the inventory budget, which was determined
in the development of the operating budget.

Temporary investments: The balance depends on the existence of increases or

decreases, adding or subtracting them, respectively, from the balance that
there was at the beginning of the budget period.

23
Non-current assets
Depending on the asset in question, the initial balance is added to the amount.
corresponding to the new acquisitions and the sales are subtracted
corresponding to said asset. The same procedure should be applied for the
accumulated depreciation of that asset.

Short-term liabilities
Suppliers: It is determined as follows:
Initial supplier balance + Total purchases made during the period
budgetary) - Payments made during that period.
Other current liabilities: According to the conditions that are established for
each one (income tax payable, documents payable,
etcetera

Long-term liabilities
In relation to other liabilities, both short and long term, to the amount
initially it is added if new liabilities were incurred, or it is subtracted if the total was paid
part of them.

Accounting capital
Contributed capital: This amount that appears in the initial balance is only
modify if there were new contributions from the shareholders or withdrawals.

Earned capital: The initial balance is increased by the profits of the period
budgetary, which are obtained from the income statement
budgeted; if there are losses, it is deducted from the initial balance of profits
retained, just as if dividends were declared.

24
 PRACTICAL APPLICATION CASE (MASTER BUDGET)
The information that has been provided for the preparation of the budget is
comprised of the General Balance 2023, the raw material consumption ratios
with their respective costs and for each product, the man-hours consumed in the
production, the manufacturing expense based on man-hours, the budget
of quarterly box provided as a support element based on information
historical business. Selling and administrative expenses: S/ 200,000.
BALANCE SHEET 2023
ACTIVE PASSIVE
Current Asset Current Liabilities
Cash or Equivalent of
cash 15,640.00 Accounts Receivable Commercial8,000.00
Accounts Receivable Commercial 26,000.00 Taxes Payable 6,000.00
Raw Materials 16,200.00 14,000.00
Finished Products 15,160.00 Non-Current Liabilities
Total Current Assets 73,000.00 0.00
Non-Current Asset TOTAL LIABILITIES 14,000.00
Real Estate Machinery and Equipment 455,000.00 ASSETS
Accumulated Depreciation -60,000.00Capital Social 400,000.00
Total Non-Current Assets 395,000.00 Accumulated Results 54,000.00
TOTAL ASSETS 454,000.00
TOTAL ASSETS 468,000.00 TOTAL LIABILITIES AND 468,000.00
EQUITY

This company manufactures two products, P and Q, in whose production process is employed
the raw materials A and B. Additional Data:

25
Based on this information, the sales budget has been formulated,
production, of materials, of purchases, of inventories, the financial budget, the
Profit and Loss Statement (Next Year) and the corresponding balance in
budget format.

CASE DEVELOPMENT:
OPERATING BUDGET
SALES BUDGET:
First, we project the sales revenue budget, which results from
the multiplication of the projected sales of product P of 7000 units
multiplied by its price and the product Q, of 2500 also multiplied by its
price, 150 and 200 respectively, obtaining a total revenue from sales of the
the amount S/. 1,550,000.

PRODUCTION BUDGET:
To formulate the Production Budget, we consider the projected sales.
of each of the products (P and Q), adding their physical inventories of
final products and deducting the initial inventories of products
respectively. We will take as an example the budget for product P: 7,000
(+) 900 (-) 100 = 7,800, that is to say the production budget for the year 2024 of
product P will be 7,800 units, and the production budget for Q will be
2,550 units.

26
BUDGET FOR MATERIALS:
As we already know, the budgeting of the material requirement is processed
based on the production budget. This budget involves scheduling
of necessary physical units that are coherent with the production budget.
Let's consider the budget for materials concerning material A:
Material A is needed to produce both product P and Q, which is ...
It is worth saying that the consumption ratio is 12 and 10 units of A respectively.
P = 7,800 X 12 = 93,600, Q = 2,550 X 10 = 25,500
So the material budget for product A is 119,100 units.
In the same way, the budget for B is 82,800 units.

PURCHASE BUDGET:
The Purchasing Budget is nothing but the conversion of the Materials budget.
in monetary terms, so we will proceed as follows:
Budget for Material A (X) Unit cost of A = 119,100 X 1.90 = 226,290
Budget for Material B (X) Unit cost of B = 82,800 X 2.40 = 1,987.20
That is, the company's Purchasing budget will amount to S/. 425,010.

27
LABOR BUDGET:
The Direct Labor budget in this case is formulated based on
the man-hours consumed by each of the products in such a way that we have
to multiply the production budget of P and Q by the hours consumed
in the production of each one of these.
The Production Program is for 7,800 and 2,550 units of products P and Q
respectively. Likewise, the H/h needed for unit production is
16 H/h and 18 H/h in the same order and the cost of the H/h is S/ 2.50.

(H/h = S/ 2.50)

So, S/ 312,000 for product P and S/ 114,750 for product Q,

totaling S/ 426,750 as the annual MOD budget.

FINAL INVENTORY BUDGET:

The Final Inventory Budget for both finished products and raw materials
Primers are essential as they would serve as the basis for formulating the
2024 budget, as well as being part of the financial statements
basics to project from the budgeted year.
As we have already warned, the management of inventories of finished products
the procurement of raw materials responds to the policies of the company's management,
obviously, considering the aspects mentioned earlier, in a way
as stated in the case development, the Inventory Budget of products
The monetary term is S/ 114,520 and the raw materials term is S/ 11,650.

28
MANUFACTURING EXPENSE BUDGET:
The Manufacturing Expense Budget will be formulated based on the
information that has been provided to us, in this case, it has been stated that
the manufacturing costs amount to S/. 2 and are linked to the hours worked deployed and to
the production, therefore the budgeted amount for manufacturing expenses will be
from S/. 249,600 for product P and S/. 91,800 for product Q, making a total
budgeted at S/ 341,400.

BUDGET FOR SALES AND ADMINISTRATIVE EXPENSES:

In the Administrative Expenses budget, detailed information is not required in this case.
some given that this data has been provided directly and amounts to the
amount of S/. 200,000.

BUDGETED FINANCIAL STATEMENTS:

The preparation or budget formulation, in a consolidated format, includes
the revenues versus the budgeted expenses in a budget period
concluding in obtaining the corresponding balance, in this case we are going to
formulate the two basic financial statements; the Income Statement and the Balance Sheet
General, as well as a quarterly financial budget (Next Year), is
It is necessary to emphasize at this point that this last financial statement has been prepared
based on the information provided in the table.

29
BUDGETED INCOME AND LOSS STATEMENT:
To formulate the Budgeted Income Statement, we must consider in
first place the revenues from sales, subsequently, the so-called is calculated
Cost of Goods Sold.

It is necessary to specify that some authors calculate the cost of sales as a

percentage proportion of total sales, due to inventory management
Many times it becomes controversial given the ongoing discussion between
different authors regarding costing methods whether by Absorption or
Variable. In our case, we have chosen given the level of information that is provided to us
has provided to calculate the Cost of Sales as shown:
We first consider the raw material consumed, which amounts to S/.
425,010; then the direct labor amounting to S/. 426,750 and finally the
manufacturing expenses amounting to S/. 341,400 the sum of these amounts us
of the Production Cost (logically without considering the rest of the expenses), which is
from S/.1,193,160; but we take into consideration that this amount represents the
cost of the budgeted production or what is budgeted to produce but not
from what is projected to be sold.

Therefore, we must add the amount of S/. to this production cost.

15,160 from the Finished Goods inventory section of the balance sheet
As of December 31, 2023, it should be noted that this amount is simultaneously
the final inventory for the year 2024 and at the same time the initial inventory on 01.01.2024.

Similarly, the company expects to end the year 2024 with an inventory or stock of
products finished for an amount of S/. 114,520 (this data has been recorded
based on the inventory budget); which is equivalent to stating that the company
project not to sell part of the production of products A and B, therefore, we must
make the corresponding deduction from the production cost to find the cost of
what is effectively budgeted to sell.
We find the Cost of Sales:
Production Cost (+) Initial Inventory of Finished Goods (-) Final Inventory of Finished Goods.

1,193,160 (+) 15,160 (-) 114,520 (=) S/. 1,093,800.

30
If we deduct the cost of sales found from the total revenues, we will obtain the
Gross Profit is S/.456,200; if we subtract the selling expenses from this profit
and administrative expenses, and financial expenses, the Operating Profit will be obtained.
amounting to S/. 256,200; then we proceed to calculate the Income Tax that
is equivalent in our country to thirty (29.5)% of the Profit S/. 75,579; after
deducted this tax the budgeted Net Income which is S/. 180,621.
PROJECTED INCOME STATEMENT
By December 31, 2024
Sales (Revenue) frame 1 1,550,000.00
Cost of Sales table 9 1,093,800.00
Gross Profit 456,200.00
Sales and Administration Expenses 200,000.00
Operating Income 256,200.00
Income tax 29.50% 75,579.00
Net utility 180,621.00

FINANCIAL BUDGET:
It shows us the projection of income and expenses of the company during the
fiscal exercise, this document is formulated on a quarterly basis, depending on
historical information, from which to make the relevant estimates.

31
As can be seen in the development of the case, the formulation of this
The budget begins by considering as part of the income of the period,
the amount of the balance as of 31.12.23 of the Cash account is S/. 15,640, because with
the company also uses those funds to meet its obligations in the
fiscal year (Next Year).
We can also note that there is a payment on account of the Income Tax of
S/. 30,000; as well as machinery will be purchased in the last quarter for S/.
50,000; it is supposed that this machine will be purchased with company funds.
to say without funding how much is not budgeted for entries due to
any credit.
The total income is budgeted at S/. 1,275,640 and the total expenses at S/.
1,106,000; budgeting for a final cash balance of S/. 169,640 by the end of
(Next Year).

32
BUDGETED BALANCE SHEET:
INITIAL BALANCE
ACTIVE PASSIVE
Current Asset Current Liability
Cash or Cash Equivalent 169,640.00 Accounts Receivable Commercial
285,610.00
Accounts Receivable Commercial 316,000.00 Taxes Payable 51,579.00
Raw Materials 11,650.00 337,189.00
Finished Products 114,520.00 Non-Current Liabilities
Total Current Asset 611,810.00 Total Non-Current Liabilities 0.00
Non-current Asset TOTAL LIABILITIES 337,189.00
Property Machinery and Equipment 505,000.00 ASSET
Accumulated Depreciation -95,000.00 Share Capital 450,000.00
Total Non-Current Assets 410,000.00 Accumulated Results 234,621.00
TOTAL ASSETS 684,621.00
TOTAL ASSET 1,021,810.00 TOTAL LIABILITIES AND EQUITY 1,021,810.00

The Cash and Banks account has been automatically created by extracting the balance.
Final of the Financial Budget, that is S/. 169,640; which will be part of the
cash to cover the expenses corresponding to the future (Next Year).
The Accounts Receivable section is prepared considering the Sales budget that
it rises to S/. 1,550,000 and the charges made are deducted as recorded in the
financial budget amounting to S/.1,260,000 and adds the amount of
Accounts Receivable for the year 2023; this consideration is taken into account due to
that the total charges amount to S/. 1,260,000; that is to say, we deduce that the
the company also sells on credit.
In the area of Inventory, both for raw materials and products
The amounts recorded are those corresponding to the Budget of
Inventario 2024 de S/. 11,650 para materias primas y de S/. 114,520 para productos
finished.
The machinery and equipment sector includes the purchase of non-current assets
machinery for S/ 50,000 that will take place at the end of the year and is reflected as an expense
In the financial budget, the annual depreciation is S/. 35,000. This is a
Given data, therefore the projected accumulated depreciation is S/. 95,000; The
The asset that is projected to be acquired will begin to depreciate in the projected year.

On the liabilities side, we need to highlight the Accumulated Results that have been
obtained by adding the accumulated result of the year 2023 by S/. 54,000 to the
Net Utility from the budgeted Income Statement for an amount of
S/. 180,621 which causes this item in the projected balance to amount to S/.
234,621

33
Regarding the share capital, it has increased due to the purchase of
machinery at S/. 50,000.
Regarding the Taxes Payable, we must consider the taxes for
payment for the year 2023 for S/. 6,000 plus the budgeted Income Tax of the
gains and losses amounting to S/. 75,579 and from this the advance payment is deducted
The projected income tax in the Financial Budget amounts to S/.
30,000.
And finally, Accounts Payable have been projected at S/. 285,610 which is
obtained by deduction, that is, appealing to equality: Assets = Liabilities + Equity
What is the cornerstone of Accounting.
It is deemed necessary to mention that in this case we have formulated a
Master budget understood as the fundamental short-term budget.
deadline and tool for the business management of the budget exercise.

34
 CONCLUSIONS
The budgeting process can reveal opportunities or threats that were not
known before the planning process of the budget itself. In these
moments when the world's economic situation is facing serious problems
Regarding liquidity and profitability, it is necessary for companies to take advantage of their strengths.
competitive in order to remain in the market; therefore, to prepare the
The master budget has become a vital necessity.
The master budget is a comprehensive financial plan, consisting of
various budgets from all areas of the business. It is the culmination of a whole
planning process and must allow:
Facilitate the control of activities.
Conduct a self-analysis in each period.
Manage resources effectively and efficiently
Define the basic objectives of the company
Determine the responsibility and authority for each area of the business.
It is also important to highlight that science and technology are elements
essential for achieving a reliable master budget due to the
standards of use, both for raw materials and for labor must
be determined by well-qualified industrial engineers who use the
scientific and technological tools that exist for this purpose in a way
efficient.
Finally, it is important to point out that, both in companies and in life
personal, due to the fact that resources are increasingly scarce, it is necessary that
a budget planning is carried out for the best use of our
income; which will allow us to cover any unforeseen events that arise.

35
 RECOMMENDATIONS
a) The master budget should not be implemented only in companies that
They want to remain competitive in the market, as it is a tool
financial that allows not only to allocate resources, forecast sales, coordinate
and communicate the objectives and goals to all staff, but also allows to take advantage
investments, increases in market positioning, mergers, alliances
strategic, as well as making decisions when increases occur in the
tax rates, increases in the prices of goods, etc.
b) The objectives and goals that are intended to be achieved for the period must be communicated.
what is being budgeted, and communicate it to all staff throughout the organization,
even more so for those related to the preparation of the budgets for each
area.
c) At the moment the budget is being prepared, it should be prioritized or
to hierarchize which external factors have the greatest impact, which will depend on
of the type of product(s) that an organization markets.
It is recommended to carry out a detailed planning of the monitoring of the
budgets taking into consideration that it was created for that purpose, being a
a modern tool that allows for control and at the same time reflects behavior
of economic indicators.

36
 BIBLIOGRAPHY
Ramírez Padilla, DN. 2008. Managerial Accounting. Mexico: McGraw-Hill
Cárdenas R. 2001. Budgets: Theory and Practice. Mexico: McGraw-Hill Publishing.
Horngren Sundem E. 2004. Introduction to Managerial Accounting. Mexico:
Prentice Hall.
Welsch G, P Gordon. R Hilton and R Noverola. 2005. Budgets, Planning and
Control. EU: Pearson.
Vásquez Cardenas, Juan J. 2011. Costs and Budgets. Case of Application
practical (Master Budget). Catholic University of Los Angeles of Chimbote.

37