Budgeting, Financial Forecasting, And Reporting Requirements For An Organisation

Part B

The sales budget, profit budget, cash flow and debtors ageing summary have been done in excel format The budget notes have been prepared keeping the following things in mind

Identification of reasons for previous profits and losses

The reason behind the past advantage could be because of the money related organization programming. The creating of the customer base is helping drive bargains besides new references of new customers. This has diminished the notification cost(Olatunji,  Oladipupo and Joshua 2017).

Another factor that could contribute to previous profits and losses is the usage of an advantage and incident record, which helps in the reduction of expenses and the earnings could be extended to a feasible point.  

Comment on the effectiveness of existing financial management approaches

Cash related organization capacities have been broken down by fiscal populism, insufficient and mangled budgetary frameworks and the breakdown of the present cash related organizations. Progress of various manufacturing countries and economies depend vibrantly on external cash related resources, including the funds and credits from worldwide affiliations. The fused related system making foundations should be an expert element in medium and whole deal hypothesis conceiving , arranging and budgetary organization of the economy(Badaik 2017).  A very large financial organisation should displace transient crisis organization , especially as to  inadequacy organisation.

All assumptions and bases that have been made or used to form budgets

The basic assumptions and basis that have been made or used to form budgets include:

• Update spending suppositions- The suppositions of the audit about the surroundings of the organisationt were implemented as the basis for the last budget plan
• Review bottlenecks- Decide the optimum bottleneck level which is persuading the company to create additional agreements and make reviews about  how this will affect any surplus  income(Peers,  van Heerde and Dekimpe 2017) .
• Step costing focuses- These figure out if any expenses related to progression will be bought amidst the conceivable possibility of business action in the upcoming spending period and describe the measure of these expenses and at what action levels they will be carried at(Staib and Jegelka 2017).
• Obtain office spending plans- Getting the financial plans of the departments , checking for errors and contrasting  with the detected bottlenecks. Modify the financial plans as required.
• Update the spending model- Enter all the data that is available for spending into the expert spending model.
• Issue the financial plan- A form of the financial plan needs to be prepared and circulate it to every concerned party.
• Any relevant notes regarding implementation and monitoring of  budget expenditure

Budget implementation –  The Major activities of budget implementation include:

• Revenue generation and mobilisation
• Physical monitoring of project sites/ programmes
• Award of contract as specified in the budget

Budget evaluation- The major activities of budget evaluation include

• Determine value for money
• Prevent or reduce the impact of frauds and losses
• Receipt of summary of revenue and expenditure
• Explanations regarding various legislations

The major legislations include :

• Ministry of Finance, Ministries , Departments and agencies
• Accountant General, RAMC, FIRS
• The National State and Local Government legislatures( National Assembly, State Houses of Assembly (Gertler et al. 2016)
• Auditor general, national planning commission

The series of questions have been discussed as follows:

Answer 1

The current statutory requirements that are necessary for tax compliance include:

• Reduced risk and improved efficiency
• The compliance procedure should be centralized with an integrated service provider
• Enhanced visibility and more process control
• The management should pay more emphasis on the core businesses and platforms for growth(Gale, Krupkin and Rueben 2015.).

The tax liabilities that Houzit Pty Ltd should pay under taxation legislation include:

• Accrued income and franchise taxes payable
• Accrued local taxes payable
• Current monthly bills that include rent, utilities and others
• Employee state income tax withheld
• Employer provided health insurance
• Sales tax payable
• Customer deposits(Houseworth, Passer. and Wright 2014)

The calculation methods of tax liabilities under tax legislation include:

• Deferred method- the measure of pay expenses depends on assessment rates. It lays importance on legitimate coordinating of costs with the incomes that the firm has acquired. It is not implemented by GAAP(Wang, Butterfield and Campbell 2016).
• Asset liability method- The amount of approved salary expense depends on the rates of assessment that actually relates to the periods that the contracts relate to. It is an accounting report based methodology. It needs money related adjustments in assessing monetary position . It also anticipates the future money flows . It is the main technique that is employed by GAAP(Zhou,  and Guillén 2015).
• Implications of Valuation Allocation- A resource is a reduction in flow of future money . The benefit hopes to accrue to the firm later on. For example a net operating loss reveal  is not useful at all if the firm does not have hoe that it can have a positive benefit in the next 20 years. Changes in the recompense influence salary cost . Despite  the fact that the remittance obligation is biased, the presence and size reveals the wish of the administration  of future income. These sorts of changes need to be implemented(Öztürk and Kuzucuo?lu,  2015).

The current compliance requirements and liabilities  that are required for businesses fall into two groups: internal and external

Internal requirements

• Corporations- Corporations have very stringent inside requirements, including conducting beginning and year end official and investor social events, getting and keeping updations of nearby laws , giving shares to shareholders and updating the trade of each stock(Awad, Sakr. and Elgammal 2015)
• LLCs-Although it is not required in a LLC, yet it is suggested that there should be a maintenance of a restructured working declaration, issuing offers of enrolment, recording all investment trades of a premium nature and holding yearly social events allowing the executives to have a get- together at the end of the year(Yates and Shelton 2018).
• Compliance Kit- there are many business stalwarts that use a consistent unit to maintain records. These help in consolidating things.

External requirements

• Annual reports- Most states need associations and LLCs to record an annual report which gives states the authority to track qualified organizations and LLCs. There are distinct sites that require periodic declarations. The states require a change to be paid when the recording of clarifications take place. The amounts range from 10 dollars to 300 dollars(Dick, Hull and Jackson 2017).
• Franchise tax- There are states that require a foundation obligation. It refers to a state paid cost for obtaining the benefit of acting as an association or LLC (Chapman 2014).
• Due dates for annual statements and franchise taxes vary by state- a couple of states exist that  that have due dates for LLC’s capacity. Distinct states have a unique due date , one for  association yearly decrees and another onefor LLCs.
• Knowing the obligations cost- Since the year end elucidations and charges for foundation address continual necessities, there should also be a proper scrutiny of the necessities that are required before joining a business. This should help in organising the fund requirement in a proper manner(Gross et al. 2015).

The methods or reviews that are  there for commercially obtainable financial  software  that  houzit needs to select are  Determining the most appropriate financial management software by

• Choosing a commercial licensed program that manage the funds of a small business or a  considerable portfolio.
• Choose a shareware program that would be able to classify  a family budget or help the organisation  in  tracking investments.

A comparison between  two software titles Ariba Discount Professional and Quorum Capital Budgeting Tracking against  the  capabilities of existing and prioritised requirements are as  follows:

Ariba Discount professional- Ariba is a SAP company that deals in  a software package that can automatically manage the connection between the client and vendor to compute the discounts given to suppliers. this helps in maximising the return . it is a software that manages the concept of  working capital.It can manage working capital  by taking  benefit of net  discounts to maximise the position of the cash(Hunt et al .2017). This software needs  the suppliers to be on the Ariba Network, which is the world’s largest trading partner community.

Quorum Capital Budgeting Tracking-It is important that business managers display capital projects to make sure that the initial estimates are content. Quorum capital budgeting tracking is a software that upholds an actual to forecasted analysis throughout the project in order to keep a track of on going projects. In this software, users can customize benchmarks. Also , users can search a variety of reports using diverse standards  such as profit centre or vendor. This software can estimate hoe the project can be successful before it has even started. This software can objectively choose the best projects to pursue(Shea 2016).

Specifications

Answer 4

We can apply the following principles of accounting in developing the  budgets that are required for this task:

Time period principle

In this day and age the business should report the  delayed  money related consequences of its activities. Thr activities normaly spread over month to month, quarterly or annually. As soon as the accounting period is specified the provisions of Generally Accepted Accounting Principles are used to record the trades that are there in each period(Zhao et al.2016).

Matching principle

The matching principle is applied in preparing a budget. This ensures that   the revenues earned in the period are matched with the expenses that are incurred in earning that revenue for that period.it is the fundamental accounting rule while preparing an income statement. Due to the matching principle, the expenses that are present in the income statement are not necessarily the expenses that were incurred that month. An example of matching principle is when a company makes sales, majority of it is credit sales(Wills, Hackel and Van Bavel 2018). However there is a possibility of bad debts when the sale is made. Hence no expense should be recognised right at the moment when the sale is made. The recognition of bad debts needs considerable estimation.

Account Group

Account groups are used in preparing a budget. This is done  by separating the revenue  and expense accounts into  profits, asset, liability and equity accounts. It helps in better classification. This example of accounts group shows a documentation master account, who is a  partner managing four customer accounts(Penman and Yehuda 2015.).

Answer 5

The consequences of authenticity in the process of correcting and getting prepared arrangements of spending is called cash related respectability. It incorporates shielding a  system of full accountability with companies paying little attention to whether it is based on trade or  is it a kind of a direction(Chen  et al, 2016). It is moreover implied that every piece of information contained in the budget honestly reflects h actual state of financial dealings in the company.

Answer 6

The critical dates that will generate resources for Houzit Pty Ltd in the next financial cycle are as follows:

• Loan of $10000 on 31^st December
• Advertising budget increased by $ 70000 over 2010/11
• Salaries and wages rise $ 172500 in 2010/11.

The items that are recommended for inclusion in budget sheets are listed below:

• Water bill
• Transportation
• Amenities of staff
• Office expenses

The modified internal controls that could improve risk management for the company are:

• The rules , regulations and procedures need to be followed.
• The time sheets and operating hours should be noted.
• There is a need to apply and implement all the required rules

The checklists of methods to illustrate due diligence  include :

• The receipt of cash will need to have a secondary monetary system
• There should be a proper authorisation of receipts
• Maintaining a numbered cash receipts book.

Issues

Existing financial management approaches are not effective due to the following reasons:

• The information regarding new customers is not available.
• Non effective recording of customer discounts
• Inefficient cash and debtors reconciliation procedures implemented
• Invoices are not effectively linked with purchase orders
• Cash receipts are not numbered properly(Paget, et al. 2015).

Variances

After analysis , it is found that there is significant difference in budget and actual such as  ^% difference in  sales, and 3 %  unfavourable difference in cost of goods sold. The big difference tat is observed n this case is that of net profit and income tax, which are the most impacted. The reasons for different variances that can be interpreted are as follows:

• Unfavourable sales- This is because the selling price of the product is lower than the budgeted amount.
• Favourable gross profit- this is because the sales volume have crossed targeted levels that is set previously
• Unfavourable expenses- The actual expenses have exceeded the budgeted because of reasons like poor management of expenses and poor expense decisions(Radebe and Radebe, 2014).
• Unfavourable net profit variance- the unfavourable net profit variance is because of the following reasons that include poor predictions of sales , shortages of supply materials or a change in business strategy and also the fact that the company could not get into some national magazines this quarter to promote this store.(Begenau 2016).

Performance

Some of the reasons for previous profits of Houzit Pty Ltd are as follows:

• Significant gross profit margins in production and purchase process
• Tight control over various indirect expenses such as rent, interest expenses and others.
• Significant volume of sales
• Effective method of collecting money from debtors.
• A financially viable cash position of the business
• Significant growth in profit margins.
• Significant human resources efficiency leading to tight controls over wages and salaries and other related expenses(Negara 2016)
• Generating consistent revenue in the last four years

Debtors ageing ratio

Here the debtors ageing ratio is calculated as per the template provided in the assignment. The debtors days measures how quickly cash is collected from debtors. There is an increasing trend in debtors days which suggests that the company take a longer time in realising cash from debtors as the years progress.

The Major activities of budget implementation include:

Recommendations

Some of the recommendations that can be implemented are :

• Recovering outstanding debt – The business should clear up any or all outstanding payments that it can . The debtors should settle the debt
• Rearranging expenses- Some expenses that could be rearranged include – a)adjusting the quantity or timing of the stock purchases to accord with the higher cash flow periods b) switching over banks and insurance companies to get a better deal c) arranging a deferred payment plan for larger expenses
• Offer markdowns-Offering markdowns to full produce products is a great way to boost sales and shift surplus stock or products that are already discontinued. It is also very important to comply with the pricing legislation while offering markdowns.
• Debt consolidation- the company should have a look at its current assets and see if it can combine them into a low interest rate and low fee product.
• Looking for government grants- normally the government does not provide grants to business houses, especially medium and small businesses. However if the company undertakes business expansion, then it becomes eligible for grants.
• Keeping better track of cash flow- a cash flow statements list all inflows and outflows of cash items for the next year. This will help in planning ahead and making sure that the company can cover their expenses as well.
• Improving cash flow- there are various ways by which the company can improve its cash flow that include a) making a correctly formatted invoice at the time of purchase

1. b) following up on outstanding customer payments as soon as possible c) reducing expenses by finding cheaper sources of raw materials for consolidating the debts in a better rate . Options include that of organising a periodic payment plan for larger expenses.

• Improve variances- The variances can be improved by setting more desirable targets in terms of estimating sales and net profits . It also needs to analyse the market effectively in order to estimate the required sales that is needed.it also needs change its strategy in terms of product line up, location or other factors that will further boost net profits and sales.

Evaluation

From the above analysis  it is found that the company budgets are prepared for all cost centres. The company budgets are prepared in a quarterly basis after considering all the relevant information details that are incorporated. The budget assumptions are updated as per the last budget. The most likely amount of funding that will be available during the budget period is ascertained. The revenue forecast is then ascertained and this information is used as the basis of developing their budgets. The budget is properly verified with the senior management team . A number of budget variances have also been  observed, with reference to sales., gross profits, net profits and expenses. The nature of these variances have found to be both favourable and unfavourable.

A favourable variance is one where the actual amount is  higher than predicted. Conversely an unfavourable variance happens when the actual amount falls short of the budgeted amount. The  causes of such  budget variances  include: a) Change in suppliers b) the quality of management c) Poor estimated determinations because of inadequate approximations. There are some issues that have been implemented  that include things like lack of recording discounts, lack of proper maintenance of debtors reconciliation , invoices not effectively linked with purchase orders among others.

Some modifications have also been suggested that include improving cash flow, consolidating a better debt structure, rearranging expenses and recovering outstanding debt obligations among others. These recommendations would help in better preparation of the budgets in the next accounting period and would effectively help in determining a better level of financial performance. These would modify management processes in the future and effectively help in determining an optimum budget structure.

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