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ОглавлениеIntroduction and Survey of the Contents
The textbook “Management Accounting.”, which forms the basis for the “Workbook 2 – Profit Plan | Finance Plan | Budgeted Balance Sheet” gives a comprehensive overview on the topic Accounting/Controlling. It deals with the contents of and the connections between the accounting/controlling elements Balance Sheet, Profit/Loss Account, Contribution Margin Costing, Results Statement, Profit Plan, Finance Plan and Budgeted Balance Sheet.
The approach which is used in “Management Accounting.” communicates the “Accounting/Controlling Overall Context”. It is based on the consideration that two central elements form the basic structure for the presentation of business activities in accounting/controlling of an enterprise:
The first of these two connections is the basic connection between Balance Sheet and Profit/Loss Account. This connection is dealt with – in form of case studies – in the “Workbook 1 – Balance Sheet | Profit/Loss Account”.
The second central connection is based on the interaction of the components result (profit or loss respectively), liquidity (financial solvency) and balance sheet and is represented – in a future-oriented way – by the elements Profit Plan, Finance Plan and Budgeted Balance Sheet. This connection is presented in the “Workbook 2 – Profit Plan | Finance Plan | Budgeted Balance Sheet” in its concrete numerical effects.
The connections described can be applied independent of national and international trade and tax law regulations and like that, they can be applied universally.
In the “Workbook 2 – Profit Plan | Finance Plan | Budgeted Balance Sheet” business activities in enterprises are communicated in form of case studies or numerical examples respectively; they present and annotate the concrete numerical effects of these business activities in and on profit plan, finance plan and budgeted balance sheet – step by step and in detail.
For doing so numerical examples are used which have already been introduced basically in the textbook “Management Accounting.” and which are now presented in the “Workbook 2 – Profit Plan | Finance Plan | Budgeted Balance Sheet” in more detail and in individual steps. Additional numerical examples are presented leading further beyond, presenting additional typical business activities or business cases in enterprises.
Supplementing the examples which deal with individual business activities each, the connections between profit plan, finance plan and budgeted balance sheet are presented in a comprehensive case study. In the case study, on the one hand, the mathematical connections between profit plan, finance plan and budgeted balance sheet are to be presented, on the other hand, by developing the case study step by step, the typical procedure in the framework of compiling a budgeting calculation is to be demonstrated.
Profit Plan | Finance Plan | Budgeted Balance Sheet
Profit Plan, Finance Plan and Budgeted Balance Sheet are compiled, building one on top of the other and together they result in the “Accounting/Controlling Overall Connection” – the Big Picture:
Figure 1: Big Picture
In the profit plan, based on the planned turnover/sales, the planned variable and fixed costs are deducted and lead to the planned result before or after taxes on income. The result of the profit plan is the planned profit or loss respectively of the enterprise.
The compilation of the profit plan is followed by the finance plan. In the finance plan, based on the planned profit/loss after taxes from the profit plan, the liquidity or solvency of the enterprise is planned. The result of the finance plan is the planned surplus of or demand for cash of the enterprise.
Building on the finance plan, the budgeted balance sheet of the enterprise is compiled in the next step. The basis for compiling the budgeted balance sheet for the end of the planned year is the opening balance sheet of the planned year (or the closing balance sheet of the previous business year respectively). Basing on the opening balance sheet, each individual item of the finance plan changes the opening balance sheet towards the budgeted balance sheet.
Profit plan, finance plan and budgeted balance sheet present the planned future development of the economic or financial situation of the enterprise.
In a past-oriented presentation, the profit plan is replaced by the results statement or the profit/loss account respectively. The finance plan is replaced by the cash flow statement; the budgeted balance sheet is replaced by the balance sheet.
Profit Plan
The profit plan which is shown here based on the structure of a results statement or contribution margin costing, presents – in a future-oriented consideration – the expected or planned profit situation of an enterprise.
Figure 2: Profit Plan
Referring to the content or the result which is to be determined (profit or loss), the profit plan represents a results statement or profit/loss account (that helps to assess the profit situation of an enterprise in a past-oriented way).
The result of both calculation schemes – as well that of the profit plan as that of the profit/loss account – is the (planned) profit or loss of the enterprise for which differing terms are used – depending on the structure it is based on: Corporate Result before or after tax or, as an alternative, Profit from Ordinary Activities or Net Profit/Net Loss.
In a more detailed presentation the structures can be compared as follows:
Figure 3: Profit Plan and Profit/Loss Account
Finance Plan
The compilation of the profit plan is followed by the finance plan. Basing on the planned result after tax from the profit plan, the liquidity or solvency respectively of the enterprise is planned in the finance plan. Result of the finance plan is the planned surplus of or demand for cash of the enterprise.
Figure 4: Finance Plan
The planned profit from the profit plan is converted into cash flows in the finance plan.
In the framework of presenting finance plans, two central schemes are contrasted to each other which are sub-divided into three or four sub-sectors. The basis for both schemes (the result after tax that is transferred from the profit plan) is the same, as well as the result of the two schemes (the surplus of or demand for cash). Also the items that are incorporated into the finance plan as well as the order of the presentation of the individual items equal each other.
The differences between the two schemes result from the number of sub-sectors presented and the terms that are connected with them (Cash Flow from Operating Activities, Cash Flow from Investing Activities, Cash Flow from Financing Activities or Cash Flow, Working Capital, Long-term Sector and Shareholder Sector, respectively).
Figure 5: Finance Plan 3-Step Scheme and Finance Plan 4-Step Scheme
The differing structures refer only to the presentation form or break-down of the finance plan and has no effect on the result of the finance plan or the connections between profit plan, finance plan and budgeted balance sheet.
Profit Plan | Finance Plan
Profit plan and finance plan are linked to each other in two directions. There are links and connections from profit plan to finance plan and also back again from finance plan to profit plan.
On the one hand, the profit/loss after tax from the profit plan forms the basis for the finance plan. The result of the finance plan, the surplus of or the demand for cash, must either be financed or can be invested. The resulting income from interest or interest paid affects the profit plan.
Figure 6: Profit Plan and Finance Plan
In detail, starting from the profit plan, there are a number of connections towards the finance plan.
Like that, the profit/loss after tax from the profit plan forms the starting point for the finance plan. Further connections between profit plan and finance plan result from depreciation and provisions which have already been considered in the profit plan – as well as possibly from reserves and goods on own account (capitalized).
Depending on the time allowed for payment of receivables and liabilities, connections arise between the variable part of the profit plan (turnover and use of goods respectively as well as possibly varying purchase of goods) and the finance plan. Changes of inventory or stock respectively in the finance plan have either a liquidity improving or deteriorating effect, similar to the changes in deferred charges or deferred income.
Further effects on the liquidity which also are presented in the finance plan – which however, have not been derived from the profit plan compiled before – result from taking into account the effects of investments, credit increases or redemptions, capital increases or dividends.
Budgeted Balance Sheet
The same as a balance sheet, a budgeted balance sheet is a point in time-oriented consideration of an enterprise.
The budgeted balance sheet presents the assets an enterprise has planned to have available at the end of a planned year, as well as how the enterprise will be financed at this point in time, through either equity capital or debt capital/liabilities, respectively.
Figure 7: Budgeted Balance Sheet
On the left side of the balance sheet or budgeted balance sheet respectively, the assets side, the assets of an enterprise are presented, structured in fixed assets and current assets. On the right side of the balance sheet, the liabilities side, the source of the financial means of the enterprise is presented; equity capital and debt capital/liabilities are differentiated.
Ordering the presentation or structure of the balance sheet items on both sides of the balance sheet in the Continental-European Accounting is done usually starting with items bound in a long term perspective (fixed assets, equity capital) leading to the short-term items or the items that are changeable at short notice (cash, short-term bank account, short-term liabilities).
In contrast to this order, in Anglo-American or International Accounting respectively, the balance sheet items such as fixed assets and current assets as well as equity capital and debt capital are presented the other way round – beginning with the items that are bound for a short-term in the enterprise (cash, short-term bank accounts or short-term liabilities respectively) followed by the long-term items in the enterprise (fixed assets or equity capital respectively).
This different structuring of the balance sheet as well as the possibly differing structure of the finance plan have no effect on the fundamental connections between finance plan and budgeted balance sheet.
Finance Plan | Budgeted Balance Sheet
Under consideration of the items presented in the finance plan – based on the opening balance sheet at the beginning of the planned year – the budgeted balance sheet for the end of the planned year is derived. Each item presented in the finance plan changes one item in the balance sheet from the opening balance sheet towards the budgeted balance sheet.
Figure 8: Opening Balance Sheet, Finance Plan and Budgeted Balance Sheet
The opening balance sheet shows the balance sheet at the beginning of the planned year, it contains only stock values.
The finance plan shows the planned changes affecting the liquidity of an enterprise in the course of the planned year, it contains only changing values.
The budgeted balance sheet, however, shows the (planned) balance sheet at the end of the planned year, it comprises stock values again.
In the context between opening balance sheet, finance plan and budgeted balance sheet, the following rule applies:
Each figure from the finance plan changes one item in the balance sheet from the opening balance sheet towards the budgeted balance sheet. Every single figure which is presented in the finance plan must have an effect on the balance sheet.
A balance sheet item, however, can only change from the beginning of the business year or planned year respectively, to the end of the business year or planned year, if this change is also included or presented in the finance plan.
Like that, the finance plan presents exactly the difference between the individual items of the opening balance sheet and the budgeted balance sheet
Profit Plan | Finance Plan | Budgeted Balance Sheet – THE Big Picture
A comprehensive planning system, consisting of the components profit plan, finance plan and budgeted balance sheet, is based on the connection between profit plan and finance plan on the one hand, and the connection between opening balance sheet, finance plan and budgeted balance sheet on the other hand.
By combining the two connections profit plan | finance plan as well as opening balance sheet | finance plan | budgeted balance sheet, the “Big Picture” as an overall system can be presented.
For compiling the overall system, the two connections described in detail between profit plan and finance plan as well as between opening balance sheet, finance plan and budgeted balance sheet are linked with each other.
Like that, the combination of an only to period in time-referring presentation in profit plan and finance plan (considering the development of profit and liquidity in the course of time) arises with a point in time / period in time / point in time-referring presentation of opening balance sheet, finance plan and budgeted balance sheet (consideration of balance sheet, liquidity and balance sheet again).
The combination of the two connections described (profit plan | finance plan and opening balance sheet | finance plan | budgeted balance sheet) results in the total, closed planning system, which forms the central “Accounting/Controlling Overall Context” of an enterprise – the Big Picture.
Figure 9: Big Picture
Profit Plan | Finance Plan | Budgeted Balance Sheet – NUMERICAL EXAMPLES
The case studies presented subsequently are to clarify the connection between profit plan, finance plan and budgeted balance sheet.
The numerical examples are based on a simplified balance sheet structure and on a simplified structure of profit plan and finance plan.
The simplified balance sheet structure of the numerical examples contains the following items, according to the definition of the respective example:
Figure 10: Balance Sheet | Budgeted Balance Sheet, Structure for Numerical Examples
In the simplified structure of the profit plan which is used for the numerical examples, five central expense or cost types respectively are used as a basis – material expenses, personnel expenses, depreciation, other expenses and interest paid – they are allocated to fixed or variable costs in the profit plan, according to the criteria of contribution margin costing.
The material expenses are allocated to variable expenses or variable costs respectively, all further expense items such as personnel expenses, depreciation, other expenses and interest paid are allocated to fixed expenses or fixed costs respectively.
Under additional consideration of income tax, the following profit plan structure results for the case studies:
Figure 11: Profit Plan, Structure for Numerical Examples
The presentation chosen is simplifying in so far, as items such as other income and income from participations remain unregarded. In the numerical examples, other income is added to the items mentioned in the profit plan, if required.
In the simplified structure of the finance plan, which the numerical examples are based on, the following items of the finance plan are mentioned – depending on the definition of the respective numerical example: as a starting point the profit/loss after tax, in addition depreciation, changes in provisions, receivables, liabilities and inventory, investments, changes in long-term liabilities, capital increase, dividends, as well as the final result, either surplus or demand.
Further items such as goods on own account (capitalized) and deferred income or deferred charges, are supplemented in the numerical examples – if required – in addition to the items mentione.
Figure 12: Finance Plan, Structure for Numerical Examples
The basis for the numerical examples is always the opening balance sheet, as well as a profit plan, a finance plan and a budgeted balance sheet.
The profit plans which form the basis for the examples are always based on a profit or loss of 0. A possible profit or loss does not arise before the respective business activities have been incorporated into the connection between profit plan, finance plan and budgeted balance sheet.
Based on the connection between profit plan, finance plan and budgeted balance sheet (exception: Case Study 1: Foundation of an Enterprise) the following numerical effects on profit plan, finance plan and budgeted balance sheet can be taken for granted, before considering the additional business activities in each of the numerical examples:
The depreciation included in the framework of the fixed costs in the profit plan, which has a negative effect on the profit of the enterprise, is corrected with a positive mathematical sign in the finance plan, as it does not lead to a payment in cash. With a profit or loss of zero in the profit plan, this results simultaneously in a surplus of cash in the finance plan.
The depreciation shown in the finance plan, subsequently reduces the value of the assets in the budgeted balance sheet, the surplus of cash from the finance plan increases the bank account in the budgeted balance sheet.
A possibly arising profit is taxed with a tax rate on income amounting to 30 % in the numerical examples. There are no prepayments of taxes.
The VAT for calculating receivables and liabilities amounts to 19 %. The amount of VAT which remains as the difference between the VAT that is charged to the customers and the VAT that is charged by the suppliers, is not presented for reasons of simplicity.
Every numerical example contains an empty answer sheet directly after the assignment of tasks or the basic data respectively, which can be used for entering the individual answer steps.
Please, enter the business activities described in the respective assignments of tasks, into the existing connection between profit plan, finance plan and budgeted balance sheet.
In the framework of compiling them, please consider putting in the respective business activities according to the order of their creation, either beginning with the profit plan and/or with the finance plan.
Please, take into account, that the result of the profit plan, the profit or loss, must be transferred into the finance plan as a new starting point.
After finishing the profit plan – and also the finance plan derived from it – please compile the connection between finance plan and budgeted balance sheet. Please, consider that each figure from the finance plan changes a certain item in the balance sheet from the opening balance sheet towards the budgeted balance sheet.
After having transferred all changing values from the finance plan into the budgeted balance sheet, both balance sheet sides must result in identical balance sheet totals.
All further pages following the empty answer sheet present the individual answer steps with detailed annotations to the respective answer steps, also a summary of them is shown in an overall answer.
The following numerical examples which represent typical business activities or business cases respectively, are presented in the “Workbook 2 – Profit Plan | Finance Plan | Budgeted Balance Sheet”:
- Example 1: Foundation of an Enterprise
- Example 6: Investment and Financing
- Example 7: Purchase/Use of Goods, Turnover/Sales, Bank Account
- Example 8: Purchase/Use of Goods, Turnover/Sales, Receivables, Liabilities
- Example 10: Deferred Charges, Subsequent Year
- Example 11: Deferred Charges, Subsequent Year, Continuation
- Example 13: Deferred Income, Subsequent Year
- Example 14: Deferred Income, Subsequent Year, Continuation
- Example 15: Provision, Formation
- Example 16: Provision, Reversal
- Example 17: Provision, Payment
