Sensitivity Analysis

What Is Sensitivity Analysis? – Definition Sensitivity analysis involves examining what happens to a budget when changes are made in the assumption on which it is based. It is also known as ‘what-if’ analysis, and can be carried out using a spreadsheet or with manual calculations. Manual calculations are easier if they focus only on the parts of the budget that are subject to change. Importance of…

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Time Series Analysis and Seasonal Variations

Time Series Analysis: Definition When preparing a cash budget (or the forecasts on which a cash budget is based), it is possible to use statistical techniques to arrive at valid estimates. Time series analysis is concerned with the numerical ways that the past can be used to forecast the future. The term trend analysis is also used to describe the technique examined in this article. It is useful a…

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Budgets for a Manufacturing Business

Manufacturing businesses are typically more complex than businesses that just buy and sell. In the manufacturing industry, there is a broad range of possible budgets that an organization can use to build-up the master budget and cash budget. Budgets need to be based on the same set of assumptions about the way that the organization operates. They are typically organized around estimates of the key…

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How to Prepare a Cash Budget for a New Business

In this article, we are going to see how we can build up a cash budget using the receipts and payments account. We will start by looking at the cash budget for a new trading organisation, so that we can get a clear idea of the main principles. We will also see how the cash budget fits in with the budgeted profit and loss account and balance sheet. Later on we will see how we can build on our techn…

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Control Ratios

What Are Control Ratios? Under a budgetary control system, actual performance is compared to budgeted performance to enable the identification of variances. Deviations or variances may be favorable or unfavorable, and they may be expressed in terms of absolute figures or in terms of ratios. When deviations or variances are expressed in terms of ratios, these ratios are referred to as control ratio…

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Budget | Definition, Explanation, and Classification With Examples

Definition of a Budget In business, a budget formally expresses the expected income and expenditure for a definite future period. According to J. Fred Meston, “a budget is the expression of a firm’s plan in financial form for a period of time in the future.”  According to J.L. Brown and L.R. Howard, “a budget is a predetermined statement of management policy during a given period which provides a…

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Contract Accounting: Practical Problems and Solutions

Problem 1 A company’s contract ledger shows the following details in respect of Contract No. 50, which commenced on 1 April 2019. The contract was completed by 31 March 2020 at a contract price of $200,000. The values of the materials and plant returned to store on 31 March 2020 were $6,000 and $12,000, respectively. The contract price was received in full on 31 March 2020. Required: Prepare a con…

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Methods of Preparing Cash Budget

Three methods of preparing a cash budget are outlined below: Receipt and payment method Adjusted profit and loss method Balance sheet method Receipt and Payment Method Here, cash is received from cash sales, receipts from debtors, the sale of fixed assets and investments, and the issue of shares and debentures. Both capital and revenue receipts are forecasted. The cash is applied for wage payment,…

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Cash Management

Why Do Businesses Need Cash Management? Cash is an important current asset when running a business. Cash is always needed to run a business enterprise. A reasonable cash balance is always preferred. It should not be less than the demand nor more than the reasonable demand. The lower the quantity of cash, then legitimate needs will disturb daily business routines. Similarly, holding excess cash is…

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Cost Audit

Cost Audit: Definition In a cost audit, the books of account and vouchers are examined to evaluate their accuracy. The exact calculation of the cost of a product is called a cost audit. Cost Audit: Other Definitions In the context of accounting, an audit is the systematic examination of the books, vouchers, and records of a business to enable the auditor to report whether the accounts are properly…

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