Accounting Principle

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[DATE]
[Company name]
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Contents
Task 1...............................................................................................................................................2
Moderna: “Making Bio-Tech Industry”..........................................................................................2
Task 2...............................................................................................................................................4
Financial Statements........................................................................................................................4
The purpose and importance of Income Statement.....................................................................6
The purpose and importance of a Balance Sheet.........................................................................7
The purpose and importance of cash flow Statement..................................................................8
Task 3...............................................................................................................................................8
Apple Company Financial Ratios Analysis.....................................................................................8
Apple’s Financial Performance Analysis..................................................................................19
Task 4.............................................................................................................................................20
Budgetary Controls........................................................................................................................20
Benefits of Budgeting:...............................................................................................................21
Drawbacks of Budgeting:..........................................................................................................22
To support effective and informed decision-making in budgetary planning and control, it is
important to address the following core issues:.........................................................................22
References:................................................................................................................................23
Task 1

Moderna: “Making Bio-Tech Industry”.

The role of accounting in a company like Moderna is critical for informed decision-making. The
accounting function helps the company to accurately track and report its financial performance
and position. This information is essential for management to make informed decisions about
future growth and profitability. Additionally, accounting helps to ensure compliance with
regulatory requirements and ethical constraints, Such regulations include Gdp or the Sarbanes-
Oxley Act.

Due to the rapid expansion of Moderna and rising demand for its COVID-19 vaccine, the
accounting function at the company takes on special significance. Accounting must take into
account the pandemic's effect on the company's business and revenue in order to report numbers
that are as accurate as possible (Leoni, et al., 2021).

Accounting must be regular and clear in its reporting to satisfy corporate, stakeholder, and
societal requirements. This allows investors and other interested parties to better comprehend the
company's financial standing and make more calculated choices about the company's future. The
accounting function must coordinate with other divisions, such as legal, to guarantee adherence
to all applicable rules and regulations.

The accounting function is critical in supporting informed decision-making in a complex

operating environment like Moderna. The accounting function must meet organizational,
stakeholder, and societal needs while also meeting regulatory requirements and ethical
constraints. It must be transparent, accurate, and timely in its reporting, and work closely with
other departments to ensure compliance with relevant laws and regulations (Cho, , Senn, and
Sobkowiak, 2022).

As Moderna’s financial position changed with time during Covid-19, the initial year was a
growing stage for Modena but the end of 2020 and the mid of 2021 are the boost years for sales
of the Moderna vaccine. The accurate financial statements and records assist Moderna in have an
eye on the trend of sales and the financial position of the business to make proper timely
decisions for Moderna’s survival.

For the sake of transparency, Moderna also handles bookkeeping. US The federal agency
Securities and Exchange Commission (SEC) oversees companies whose shares are traded and
sold on steps used by requiring periodic submissions of financial and other informational papers.
The major means by which the SEC achieves this goal is through the issuance of regulations and
the provision of financial important aspects of any business. These measures are being taken to
strengthen the likelihood that companies will present customers with honest and reliable
financial data (Al-Okaily, 2021).

Many state and municipal agencies, in addition to their federal counterparts, use Moderna's
financial data to fulfill their objective of preserving the national good. To guarantee finances are
already being spent efficiently and transparently, and ensuring that financial information is
prepared in accordance with applicable laws or standards, these are the major objectives. This is
helpful for the organization in maintain a positive relationship with the community, which is
crucial to gaining their trust and support for the educational system.

Workers in Moderna care deeply about how their company is doing financially. Workers'
primary concern is ensuring they will be paid for the work they do in the future. Employees
contribute value to Moderna as they stay with the company for longer, gain expertise, and take
on more responsibilities. When a company is doing well financially, it might enhance its
employees' wages and give them bonuses as thanks for their dedication (Al-Okaily, 2021).

Long-term (strategic) decisions, such as those involving Moderna's pay scale and promotion
policies, are the responsibility of the company's managers and other organizational members.
Successful company choices can't be made without the ability to understand financial reports.

Nonetheless, money isn't the only factor in every decision. Remember that non-financial or
management information is frequently used by managers and other decision-makers. These
choices take into account aspects that may not be explicitly shown in the financial statements but
are nonetheless important. Organizations can make better judgments when they consider both
non-financial and financial factors.

Task 2

Financial Statements

Income Statement

Sales 8925000
Less: cost of goods sold 5620000

Gross Profit 3305000

Less: Expenses
sales salaries expense 850000
Advertising expense 420000
Depreciation expense:
Store equipment 33000
Office Equipment 10000
Office supplies expense 4000
Miscellaneous Selling expense 18000
Office salaries expense 540000
rent expense 48000
Insurance expense 24000
Miscellaneous administrative exp 6000
Interest expense 12000
Total Expenses 1965000

Net Profit 1340000

Statement of retained Earnings

"Beginning Retained Earnings" 381000
ADD: Net Income 1340000
"Total Earnings available for shareholders" 1721000
Less: Dividends -300000
Ending Retained Earnings 1421000

Balance Sheet
Assets debit $ Liabilities + Owners Equity Credit $

Current Assets: current Liabilities

Cash 92000 Accounts Payable 38500
Accounts Receivables 450000 Customer refund payable 10000
Inventory 370000 salaries payable 4000
Office Supplies 10000
Prepaid Insurance 12000
Estimated returns Inventory 5000 Long-term Liabilities

Fixed Assets Note Payable 140000

Office Equipment 220000 162000
"Less: Accumulated Depreciation Owner’s Equity
 (58000)"
Store Equipment 650000 562500 Retained Earnings 1421000
"Less: accumulated Depreciation
(87500)" Common Stock 50000
Total Liabilities and Owners
Total Assets 1663500 Equity 1663500

The purpose and importance of Income Statement

An income statement, also known as a profit and loss statement, is a kind of income statement
that summarizes a business' earnings and expenditures over a certain time frame, usually a month
a year, or even (Kimmel, Weygandt, & Kieso, 2017). The financial health of a business may be
gauged by looking at its profit and loss statement. both internal decision-makers (like
management) and external consumers (like investors) use it to evaluate the health of the business
financially (Hitt, Ireland, & Hoskisson, 2017).

The broad use of profit and loss statements in financial decision-making and analysis attests to
their significance. Take, as an illustration:

1. Investors use P&L statements to evaluate the financial performance of a company and
assess its potential for future growth. By comparing the P&L statements of different
companies, investors can determine which companies are more profitable and have the
potential for greater returns (Bryne & Savage, 2018).
2. Profit and loss figures are used by bankers to assess loan repayment capacity. Income and
expenditures are detailed in the books of accounts. which helps lenders assess its ability
to generate enough income to repay its debts (Bierman & Smidt, 2012).
3. Profit and loss statements are analysed by managers to determine the health of a
company's finances and guide strategic planning. A Statement of Profits and Losses
(P&L) helps management pinpoint where savings can be made. determine which products
or services are most profitable, and make informed decisions about investments in new
projects or equipment (Robbins & Coulter, 2017).
In conclusion, the purpose and importance of a P&L statement lie in the information it provides
on the financial performance of a business. Buyers, borrowers, and executives all utilize it to
assess a company's financial standing or make educated judgements.

The purpose and importance of a Balance Sheet

The balance sheet provides a statement that summarises the financial health of a business as of a
given date. To evaluate the firm's liquidity, insolvency, and financial stability, it is necessary to
review the balance sheet, which details the firm's assets, liabilities, and equity. A company's
balance sheet should show its assets, liabilities, and cash on hand so that investors may get a
clear picture of the business's financial health (Robbins & Coulter, 2017).

Balance sheets are used in many areas of finance, including analysis and decision-making,
demonstrating their significance. Investors, for instance, might learn about a company's financial
soundness and development prospects by perusing its balance sheet. Taking a glance at the
bank's balance sheet may tell customers a lot about the institution's financial health and its ability
to take on new business (Bryne & Savage, 2018).

Lenders use balance sheets to determine a company's ability to repay loans. Financial profits and
debts are detailed in the accounting records. which helps lenders assess the company's liquidity
and solvency (Bierman & Smidt, 2012).

Businesses rely on accounting records to assess their financial health and guide strategic
planning. By analyzing the balance sheet, management can determine the company's liquidity,
solvency, and financial stability, and make informed decisions about investments in new projects
or equipment (Hitt, Ireland, & Hoskisson, 2017).

In essence, a balanced frame's value and use rest in the insight it gives into an entity's economic
health. Investors, lenders, and management all use it to assess a company's financial health and
make better decisions.
The purpose and importance of cash flow Statement

A cash budget is a form of the income statement that summarises cash inflows and outflows for a
certain time for a company., typically one month or one year (Kimmel, Weygandt, & Kieso,
2017). Cash flow statements are utilized by both inner decision-making (including such
management) and various customers (such as shareholders and lenders) to analyze a company's
finances and its capacity to satisfy its financial responsibilities (Bierman & Smidt, 2012).

The importance of a cash flow statement can be seen through its widespread use in financial
analysis and decision-making.

1. Cash flow statements are used by investors to examine the health and growth prospects of
a business. Investors can learn about the company's solvency and whether or not it can
finance future projects by reviewing the cash flow statement (Bryne & Savage, 2018).
2. Cash flow statements are used by lenders to evaluate a company's liquidity and solvency.
Lenders can gauge whether or not a company can repay its debts based on information
provided by the cash flow statement (Robbins & Coulter, 2017).
3. Cash flow statements are used by management to assess the health of the business and
formulate strategic plans. Management's ability to generate and manage cash, locate areas
where costs can be reduced, and make educated decisions regarding investments in new
projects or equipment can all be ascertained by examining the cash flow statement (Hitt,
Ireland, & Hoskisson, 2017).

In conclusion, a cash flow statement's value and use rest in the insight it provides about an
organization's cash generation and management capabilities. Investors, lenders, as well as
management all utilize it to assess a company's financial well-being and make informed
decisions.

Task 3

Apple Company Financial Ratios Analysis

1. Gross Profit Margin Ratios
2021

Gross Margin = 152,836,000 / 365,817,000

= 0.4177

= 41.7%

2020

Gross Margin = 104,956,000 / 274,515,000

= 0.3823

= 38.23%

2019

Gross Margin = 98,392,000 / 260,174,000

= 0.3782

= 37.81776811%

The Higher Ratio is a profitability ratio that shows how much more income is generated than
expenditures (COGS). The final profit margin is the percentage of income left over after
covering production costs and selling prices (Ak, et al., 2013).

The company's gross profit margin in 2021 was 41.78 percent, up from 38.1 percent in 2020 and
37.1 percent in 2019. Therefore, it seems that the corporation has become more effective at
turning a fraction of its revenues into actual money.

2. Operating Profit Margin Ratio

2021

OPM = 108,949,000 / 365,817,000

= 0.2978
= 29.78%

2020

OPM = 66,288,000 / 274,515,000

= 0.2415

= 24.14%

2019

OPM= 63,930,000 / 260,174,000

= 0.2457

= 24.57%

The operational net profit (OPM) is a monetary indicator used to assess the efficiency with
which a business generates revenue from core activities and excluding factors like taxes and
interest. To determine this ratio, earning is divided by gross earnings (Koen, and Oberholster,
1999).

Apple Inc.'s profitability was 29.78% in 2021, 24.15% in 2020, and 24.57% in 2019. The
profitability of processes is measured by the profitability ratio.

A higher operating profit is seen as beneficial because it signifies that the business is making
more money off of its main activities. Like the profitability ratio, the operating profit margin can
fluctuate from one year to the next for a number of reasons, including shifts in the company's
operations, the strength of the competitors, and the state of the economy.

3. Net Profit Margin Ratio

2021

NPM = 94,680,000 / 365,817,000 = 0.2588 = 25.88%

2020
NPM = 57,411,000 / 274,515,000 = 0.2091 = 20.91%

2019

NPM = 55,256,000 / 260,174,000 = 0.2123 = 21.23%

The net profit margin is a popular financial indicator since it shows how profitable a company is
in comparison to its sales. Simply divide your company's net profit by its net sales to get this
ratio.

In 2021, Apple Inc.'s net profit margin will be 25.88%, down above 20.91% in 2020 as well as
21.24% in 2019. The term "net profit margin" refers to the proportion of sales that are kept as
earnings.

For the most part, a larger net profit margin is seen as positive by both investors and analysts,
since it indicates that the company is operating efficiently. If the net profit margin drops from
one year to the next, it doesn't always mean a company is doing worse. Several variables, such as
variations in the company's performance, the level of competition, or the general economic
climate, might affect the net profit margin (Edmister, 1972).

4. Return on Capital Employed

ROCE 2021 2020 2019

Net operating profit before
interest and taxes 108,949,000 66,288,000 63,930,000
Total capital employed 172,196,000 164,006,000 182,295,000

Return on Capital Employed 63.27 40.42 35.07

A higher ROCE indicates that a company is generating more profits compared to the amount of
capital it has employed. In this case, the ROCE for 2021 (63.27) is the highest, which means that
the company was the most efficient and profitable in using its capital in 2021 compared to the
other two years. The ROCE for 2020 (40.42) is higher than that of 2019 (35.07), showing an
increase in 2020 profitability and capital efficiency over 2019 (Ak, et al., 2013)
 5. Return on Equity

Return on Equity 2021 2020 2019

Net Profit 94,680,000 57,411,000 55,256,000
Shareholders’ Equity 63,090,000 65,339,000 90,488,000

Return on Equity 1.50 8.7 6.16

2021

Return on Equity: = 94,680,000 / 63,090,000 = 150.07 = 150.07%

2020

Return on Equity: 57,411,000 / 65,339,000 = 87.87 = 87.87%

2019

Return on Equity: = 55,256,000 / 90,488,000 = 61.06 = 61.06%

If a company's return on equity (ROE) is high, it means it's profitable. The greatest Return on
Equity (ROE) for this firm was recorded in 2021 (150.07), when it also made the most profit.
return for its shareholders in 2021 compared to the other two years. The ROE for 2020 (87.87) is
higher than that of 2019 (61.06), indicating that the company's profitability in terms of the return
generated for its shareholders improved in 2020 compared to 2019 (Koen, and Oberholster,
1999).

6. Return on Assets

Return on Assets 2021 2020 2019

Net Profit 94680000 57411000 55256000
 Total Assets 351,002,000 323,888,000 338,516,000

Return on Assets 26.97 17.73 16.32

Return on assets (ROA) is a financial metric used to compare the profitability of different
businesses. Calculating ROA is as simple as dividing net profit by total assets (Taffler, 1982).

Apple Inc.'s ROI was 26.97% for the whole year of 2021, 17.73% for 2020, and 16.32% for
2019. The company has been successful in the past despite maintaining very few assets, as
shown by this.

A greater Earnings per Share (ROA) tells investors that the business is more efficient at turning
its resources into cash flow. The increased ROA in 2021 compared to the preceding season is
indicative of the company's improved profitability in recent times.

It is vital to remember that return on assets (ROA) is just one fiscal indicator among several,
though. To get a full picture of the company's financial success, other metrics, such as revenue
growth, operational expenses, and debt levels, need to be considered as well.

7. Times Interest Earned Ratio

Interest times earned 2020 2021 2019

123,136,000 81,020,000 81,860,000

EBITDA
Interest 2,645,000 2,873,000 3,576,000

Interest times earned 46.55 28.20 22.89

A company's capacity to create enough money to pay interest on debt is measured by the interest
times earned (ITE) ratio, also known as the time-to-earned ratio. By dividing interest costs by
earnings before interest and taxes (EBITDA), we may get the rate on original investment (ITE)
(EBITDA) (Taffler, 1982).
In 2019, Apple Inc. had an ITE of 22.89, in 2020 it was 46.55, and in 2021 it was 28.20. This
means that EBITDA generated by the company has more than covered its interest costs during
the past few years.

In most cases, lenders will consider a higher ITE ratio as a positive sign, since it indicates that
the company is making enough money to pay back the loan. The ITE ratio in 2020 was the
highest it had been in three years, suggesting that interest costs were covered with relative ease.

8. Current Ratio

2021

Current Ratio: = 134,836,000 / 125,481,000 = 1.0746 = 1.0746

2020

Current Ratio: = 143,713,000 / 105,392,000 = 1.3636 = 1.3636

2019

Current Ratio: = 162,819,000 / 105,718,000 = 1.5401 = 1.5401

An organization's cash flow may be used as a proxy for its financial health. The sum is obtained
by dividing the liquidity ratio by the current liquid assets (Edmister, 1972).

In 2021, Apple had a liquidity amount of 1.07, while in 2020 it was 1.36 and in 2019 it was 1.54
times. Even if the ratio has dropped over the previous four years, it still indicates that the firm
has sufficient liquid assets to meet its short-term obligations.

Increases in the current ratio are generally seen as positive indicators that short-term obligations
may be met by the company's cash on hand. In 2020, the company's current ratio was the greatest
of the three years, indicating its best ability to satisfy its short-term commitments.

9. Quick Ratio (Acid Test)

2021

Quick Ratio: = (128,256,000 - 6,580,000) / 125,481,000 = 1.0221 = 1.0221 times

2020

Quick Ratio: = (139,652,000 - 4,061,000) / 105,392,000 = 1.3251 = 1.3251 times

2019

Quick Ratio: = (158,713,000 - 4,106,000) / 105,718,000 = 1.5013 = 1.5013 times

An indicator of a company's current assets and ability to meet short-term commitments with
readily accessible cash is the quick ratio, sometimes known as the acid-test ratio. In order to
calculate the quick ratio, current assets are subtracted from inventory (Taffler, 1982).

With a fast ratio of 1.02 in 2021, 1.32 in 2020, and 1.50 in 2019, Apple Inc. has a healthy cash
reserve. The most cash reserves were sufficient to meet current liabilities in each of the three
years, though the ratio improved with time.

Having a high working capital is desirable for investors since it shows that a business has enough
to meet its most liquidity ratios on hand to meet its short-term commitments. In 2020, the firm
had the greatest fast ratio of the three years, indicating that it was best able to satisfy its short-
term commitments using its most liquid assets.

10.Cash Ratio

Cash Ratio 2021 2020 2019

Cash Equivalents 62,639,000 90,943,000 100,557,000

Current Liabilities 125481000 105392000 105718000

Cash Ratio 0.50 0.86 0.95
The cash ratio is a metric used to gauge a company's liquidity beyond its current assets. Divide
available cash by total debt to get the payout ratio.

Its cash conversion cycle was 0.50 in 2021, compared to 0.86 in 2020 and 0.95 in 2019. The fact
that the corporation has sufficient cash and equivalents to cover some of its current assets so if
the ratio has fallen over the previous three years is encouraging.

A significant cash ratio is generally seen as a positive sign since it suggests that the firm has a
large quantity of all the assets available to satisfy its short-term commitments. In 2019, the cash
ratio was greatest, demonstrating the company's ability to satisfy its short-term commitments
using its most liquidity position alone.

11.Debt to Equity Ratio

2021:
Debt to Equity Ratio = 124,719,000 / 63,090,000
Debt to Equity Ratio = 1.98
2020:
Debt to Equity Ratio = 112,436,000 / 65,339,000
Debt to Equity Ratio = 1.72
2019:
Debt to Equity Ratio = 108,047,000 / 90,488,000
Debt to Equity Ratio = 1.19
The extent to which a firm is financed by debt compared to how much is financed by equity may
be determined by looking at the payback ratio. The leverage ratio may be calculated as the total
debt less the total equity.

In the case of Apple Inc., the debt-to-equity ratio was 197.68 in 2021, 172.08 in 2020, and
119.40 in 2019. This percentage grew throughout the three years, indicating that debt financing
was more important to the organization than equity financing.
If a firm’s debt levels are rising in comparison to its equity, this could suggest that it is becoming
more debt-dependent. As a result, the company's financial stability may be threatened, and the
chance of commercial disaster may rise. Further, creditors and investors may be unwilling to
lend to or invest in a firm with a high debt-to-equity ratio, which could make it harder for the
business to raise capital in the term.

In order to improve its financial performance and reduce financial risk, Apple Inc. could consider
reducing its debt levels and increasing its equity. This could be done by retaining earnings,
issuing new equity, or finding alternative sources of financing. Additionally, the company could
consider reducing its operating expenses, increasing its revenue, or improving its profit margins
to increase its financial stability and reduce its debt-to-equity ratio.

12.Asset Turnover Ratio

Asset Turnover Ratio 2021 2020 2019

Net Sales 365817000 274515000 260174000
Total Assets 351002000 323888000 338516000
Asset Turnover Ratio 104.22 84.76 76.86

The asset turnover rate is an important financial indicator since it quantifies a firm's capacity to
turn its assets into revenue. By dividing total profits by total assets, one can determine the asset
turnover ratio.

For Apple Inc., the turnover of assets was 104.22 in 2021, 84.76 in 2020, and 76.86 in 2019. The
company's sales per asset dollar were from the last two years, indicating stronger performance in
2021.
A high asset turnover ratio is a positive indicator of a company's ability to transform existing
assets into new revenue. When compared to the previous three years, 2021 had the biggest
turnover of inventories. This indicates that the firm maximized the utilization of its resources
throughout that year.

13. Receivables Turnover Ratio

Receivables Turnover Ratio 2021 2020 2019

Net Sales 365,817,000 274,515,000 260,174,000
Accounts Receivable 51,506,000 37,445,000 45,804,000

Receivables Turnover Ratio 7.10 7.33 5.68

A company's ability to recover its accounts receivable is quantified by a ratio known as the
receivables turnover ratio. In order to get this ratio, divide net sales by deferred revenue.

During the years in question, Apple Inc.'s receivables turnover ratio sat at 7.10 days in 2021,
7.33 days in 2020, and 5.68 days in 2019. This suggests the corporation might have done a better
job of collecting its accounts receivable.

The greater the receivables turnover ratio, the more likely it is that the firm is not effectively
collecting its accounts receivable. A greater receivables turnover ratio in 2021 and 2020
compared to 2019 suggests that the business was less effective at collecting its receivable during
those years.

To improve its receivables turnover ratio and increase its efficiency in collecting its accounts
receivable, Apple Inc. could consider implementing a more streamlined credit and collection
process, improving its customer relations, or offering more favorable payment terms to its
customers. Additionally, the company could consider investing in technology to automate its
credit and collection processes or hiring additional staff to help manage its accounts receivable.
Apple’s Financial Performance Analysis

Apple's financial performance in 2019–2021, including both revenue and profit, has been strong,
with growth in both revenue and profit in numerous important sectors. However, the Covid-19
epidemic and the general macroeconomic climate should not be overlooked when evaluating the
company's financial performance.

Apple's net profit climbed dramatically in 2020 and 2021 compared to 2019, before the
pandemic, with a peak of $94.68 mn in 2021. This indicates that the business was successful in
spite of the pandemic's adverse effects.

The drop in current liabilities compared to 2019 suggests that the pandemic may have harmed
the company's ability to meet its short-term obligations. The cash ratio has improved, though,
which is a positive sign for the company's financial stability. However, the liabilities ratio is
much higher than it was in 2019, indicating that the firm has taken on a lot of debt, which might
have an impact on its future financial outcomes.

Relative to 2019, both the asset turnover ratio or the receivables ratio have declined, indicating
that the firm may not be making optimal use of its assets in maintaining its accounts receivable.
Despite the pandemic's effects, the firm has managed to sustain profitability, as seen by rising
profit margin and gross profit margin from 2019 levels.

If Apple wants to maximise its future growth and profits, it has to prioritise increasing the
effectiveness of its portfolio and receivables management. The debt-to-equity ratio of the firm is
high and might be lowered to strengthen its financial position. Apple should also pay close
attention to its gross profit margin, operational gross margin, and net profit margin if it wants to
maintain its impressive profit margins.

Even while Apple has shown resiliency in the face of the Covid-19 epidemic and the
macroeconomic climate, the company has to maintain its focus on capital and receivables
optimization, debt relief, and profitability if it wants to succeed in the long run.
Task 4

Budgetary Controls

Cash Collection Budget

Sales Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Collection from Prior year 180000 180000
30000
Quarter 1 0 210000 90000 300000
32000
Quarter 2 0 224000 96000 320000
45000
Quarter 3 0 315000 135000 450000
65000
Quarter 4 0 455000 455000
Sale of land 55000
170500
Total Collections 390000 314000 466000 590000 0

Cash Payment Budget

Quarter Quarter Quarter

Purchases 1 2 3 Quarter 4 Total
Prior year payments 40000 40000
10000
Quarter 1 100000 50000 50000 0
Quarter 2 85000 42500 42500 85000
Quarter 3 50000 25000 25000 50000
Quarter 4 45000 22500 22500
 29750
Total Collections 90000 92500 67500 47500 0

Cash Budget

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

Beginning cash balance 25000 142000 88500 25000 280500
Collections from Customers 390000 314000 466000 590000 1760000
Total cash collected during the period 390000 314000 466000 590000 1760000
Total cash Available 415000 456000 554500 615000 2040500
Expenses 0
Direct Material 90000 92500 67500 47500 297500
Direct Labor 65000 90000 140000 120000 415000
Manufacturing Overheads 60000 35000 80000 75000 250000
Selling Costs 20000 20000 250000 30000 320000
Administrative Costs 18000 20000 20000 22000 80000
Capital Expenditure 80000 60000 140000
Tax paid 20000 30000 30000 30000 110000
Total Expenses 273000 367500 647500 324500 1612500
0
Excess/Deficitof cash 142000 88500 -93000 290500 428000
0
Financings
Add: Borrowings 118000 118000
Less: Repayment including interest 127440 127440

Ending Cash balance 142000 88500 25000 163060 418560

Benefits of Budgeting:

Financial Control: Budgeting helps to maintain control over financial activities by setting
financial targets, monitoring actual performance, and comparing it with the budget (Hanson,
1966).

Planning: Budgeting provides a plan for the deployment of resources, thus allowing an
organization to prioritize activities and allocate resources accordingly.

Forecasting: Budgeting enables organizations to predict future financial results and make
informed decisions based on that information.

Performance Evaluation: Budgeting allows organizations to monitor their performance and

identify areas that need improvement.

Communication: Budgeting can act as a tool for communication between different departments
and levels of management, fostering collaboration and teamwork.

Motivation: Budgeting can motivate employees by setting goals and providing a sense of
direction for their efforts.

Drawbacks of Budgeting:

Time-consuming: Budgeting can be time-consuming and may require significant effort from
multiple departments and individuals (Lapsley, 1994).

Inflexibility: Budgeting can be rigid and may not allow for changes in circumstances, making it
difficult to respond to new opportunities or challenges.

Resistance to change: Some individuals or departments may resist changes required to meet
budget targets, which can lead to conflict.

Focus on short-term goals: Budgeting can focus on short-term goals, which may not align with
the long-term vision of the organization.

Unreliable data: Budgeting can be based on unreliable data, leading to inaccurate forecasts and
poor decision-making.
To support effective and informed decision-making in budgetary planning and
control, it is important to address the following core issues:

Integration of budgets: The budgeting process should be integrated with the overall strategy and
goals of the organization to ensure that budgets align with the organization's vision (Isaac,
Lawal, and Okoli, 2015).

Flexibility: Budgeting should be flexible to allow for changes in circumstances and new
opportunities or challenges.

Collaboration: Collaboration between departments and individuals is essential to ensure that

budgets accurately reflect the needs and goals of the organization.

Accurate data: Accurate data is crucial to ensure that budgets are based on reliable information.

Performance measurement: Performance measurement and evaluation should be an integral part

of the budgeting process, allowing organizations to monitor and improve their performance.

Continuous improvement: To maintain its usefulness and efficacy, the budgeting process should
be examined and refined on a regular basis.

References:

1. Bierman, H., & Smidt, S. (2012). The capital budgeting decision. McGraw-Hill.
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