The implementation of a budget is the responsibility of the budget director. The success of the entire exercise of budgeting depends on two important factors.

First, proper and clear communication to all key people involved in the implementation of the budget. These stakeholders should have a clear understanding of what is expected of them and how to achieve the goals.

Second, cooperation and encouragement from the top management in achieving the budget targets. The company’s leading managers and executives should be willing to reward people who meet budget goals.

Ideally, top management and staff working at the lower levels of management should collaborate to prepare and implement the budget successfully.

Example

Shown below are the budgeted statements of cash receipts and cash disbursements for the XYZ Company for the year ended 30 June 20×1.

Total First Quarter Second Quarter Third Quarter Fourth Quarter
Opening Cash Balance 85,000 20,000 15,000 30,000 20,000
Cash Receipts 60,000 15,000 6,000 26,000 13,000
Total Cash Available 145,000 35,000 21,000 56,000 33,000
Cash Disbursements:
Inventory 25,000 5,000 6,000 9,000 5,000
Asset Purchase 60,000 30,000 15,000 5,000 10,000
Operating Expenses 15,000 5,000 5,000 2,500 2,500
Total 100,000 40,000 26,000 16,500 17,500
Disbursements:
Minimum Cash Balance Required 20,000 5,000 5,000 5,000 5,000
Total Cash Needed 120,000 45,000 31,000 21,500 22,500
Excess of Cash Available Over Cash Disbursements 25,000 (10,000) (10,000) 34,500 10,500

 

Budgeted Balance Sheet, 30 June 20×1
Current Assets
Cash 25,000
Accounts Receivable 10,000
Inventory 20,000
Fixed Assets
Land 30,000
Total 85,000
Liabilities and Owner’s Equity
Current Liabilities
Accounts Payable 20,000
Accrued Expenses 5,000
Owner’s Equity 40,000
Reserves and Surplus 20,000
85,000

True is a Certified Educator in Personal Finance (CEPF®), contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.