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FNSACC402 prepare Operational Budgets


  1. Why is it necessary to determine and confirm scope and nature of budgetary planning activity with relevant colleagues? Discuss in 50 to 80 words

It is necessary to determine and confirm scope and nature of budgetary planning activity with relevant colleagues because consultation with employees might give some surprising results. they might offer suggestion and ideas with regard to waste management , efficient resource usage , suggestion for improving supplier performance , improvements and methods of increasing productivity that managers, who do not work on the floor, could never had thought of themselves. involvement of employees in setting goals and targets. Including financial targets and responsibility of monitoring their own performance encourages ownership.

when it comes to sharing information consulting with them regarding goals and how well they are progressing in achieving financial targets. Relate financial goals to perform and build on the concept of self management . this will lead to increased discretionary effort, hence increased productivity. Encourage employees to think for themselves and think for the organisation. learn to listen to their ideas.

  1. Examine five cost reduction methods that could be investigated and identify who, within a business, could be made responsible for each method or strategy.

Cost reduction method/strategy

Position responsible

Waste minimisation

All staff

Reduce staff


Obtain the product for less


Activity involvement and communication



Security department

Activity 2

  1. What is the importance of a cash flow budget or report? Discuss in 80 to 100 words.

Cash flow budget or report are important management tools which allow businesses to properly manage their performance. Each performs different functions enabling businesses to make informed decisions based on the data and information provided by them. Business owners, especially as we look forward to a new financial year, should be forming cash flows and budgets now to allow comparison of performance and planning for the business when 1 July rolls around.

  1. What data might you need to collect, and form whom, in order to construct a cash flow budget? Discuss in 50 to 80 words.
  2. performance data from previous periods
  3. Financial proposals from stakeholders
  4. Financial information's from suppliers
  5. Customers or supplier research
  6. competitor research
  7. management policies and procedures
  8. Organisation budget preparation guidelines
  9. declared commitments in given areas of operation
  10. grant funding guidelines or limitations
  1. Describe what the following budgets/ reports are and how they mightbe used to inform an organisation's operation.
  2. Variance analysis:

Variance analysis is especially effective when you review the amount of a variance on a trend line, so that sudden changes in the variance level from month to month are more readily apparent. Variance analysis, in budgeting (or management accounting in general), is a tool of budgetary control by evaluation of performance by means of variances between budgeted amount, planned amount or standard amount and the actual amount incurred/sold. Variance analysis can be carried out for both costs and revenues.

  1. The general ledger:

A general ledger is a chronological accounting record a business uses to keep track of financial transactions. Transactions are categorized and summarized into general ledger accounts. An account is a unique record for each type of asset, liability, equity, revenue and expense. The ledger provides a complete record of financial transactions over the life of the company. The ledger holds account information that is needed to prepare financial statements and includes accounts for assets, liabilities, owners' equity, revenues and expenses.

  1. A sales analysis report/ budget report:

A sales analysis report shows the trends that occur in a company's sales volume over time. In its most basic form, a sales analysis report shows whether sales are increasing or declining. At any time during the fiscal year, sales managers may analyse the trends in the report to determine the best course of action. Managers often use sales analysis reports to identify market opportunities and areas where they could increase volume. For instance, a customer may show a history of increased sales during certain periods. This data can be used to ask for additional business during these peak periods.

  1. Variance analysis reports.

Variance analysis is usually associated with a manufacturer's product costs. In this setting, variance analysis attempts to identify the causes of the differences between a manufacturer's 1) standard costs of the inputs that should have occurred for the actual products it manufactured, and 2) the actual costs of the inputs used for the actual products manufactured. To illustrate, let's assume that a company manufactured 10,000 units of product (output). The company's standards indicate that it should have used $40,000 of materials (an input), but it actually used $48,000 of materials. This unfavourable variance needs to be analysed. A common variance analysis will divide the $8,000 into a price variance and a quantity variance. The price variance identifies whether the company paid too much for each unit of input. (Perhaps it paid more per pound of the input than it had planned.) The quantity variance identifies whether the company used too much of the input.

  1. The revenue and expenditure report/ budget.

The amount of money allocated to the maintenance and growth of a business. A revenue budget is essential to management and is the result of a business's forecasts of sales revenue, expenses and capital expenditures. Revenue budgets help business save time and effort by the proper allocation of resources. Revenue budgets are forecasts of a company's sales revenues and expenditures, including capital-related expenditures. It is essential that you establish whether you possess enough financial means to conduct operations, grow your business and ultimately make a profit.

  1. What internal and external data sources might be utilised when developing new budgets? List and briefly describe 10 data sources.

Debtor reports :

preparing cash flow statements regularly , as well as debtor and creditors reports will assist with improving cash flow. the business needs to know when debts fall due and should follow up overdue payments. poor management of debtors will have a greater impact on some business under gst as the business might be funding GST payments to the tax office before the tax has been cancelled

Accounting records:

which can be used to calculate gross margins on product lines to determine which product to contribute the most to the bottom line and which are under-performing. gross margin is calculated by talking cost of goods sold from sales. comparing a product line's gross margin to budgeted and previous figures will inform the business how the product is performing.

Budgeted balance sheets:

The budgeted balance sheet is extremely useful for testing whether the projected financial position of a company appears to be reasonable. It also reveals scenarios that are not financially supportable (such as requiring large amounts of debt), which management can remedy by altering the underlying budget model.

A budgeted balance sheet should be constructed for each period spanned by the budget model, rather than just for the ending period, so that the budget analyst can determine whether the cash flows estimated to be generated will be sufficient to provide adequate funding for the company throughout the budget period

A capital expenditure budget:

The capital expenditures budget identifies the amount of cash a company will invest in projects and long‐term assets. Although funds for expenditures may be identified and approved in total during the budget process, most companies have a separate process for approving funds for the specific items included in a capital expenditures budget. The process includes a financial evaluation to determine whether the company's return on investment targets are met and, once the targets are known to be met, a qualitative review by a top management team. Many companies include long‐term assets, such as joint ventures, purchases of other companies, and purchases or leases of fixed assets, as well as new products, new markets, research and development, significant marketing programs, and information technology items in their capital expenditures budgets.

The general ledger:

A general ledger contains all the accounts for recording transactions relating to a company's assets, liabilities, owners' equity, revenue, and expenses. In modern accounting software or ERP, the general ledger works as a central repository for accounting data transferred from all sub ledgers or modules like accounts payable, accounts receivable, cash management, fixed assets, purchasing and projects. The general ledger is the backbone of any accounting system which holds financial and non-financial data for an organization.[1] The collection of all accounts is known as the general ledger. Each account is known as a ledger account. In a manual or non-computerized system this may be a large book.

The product activity report:

Displays every transactions assigned to a specific product or product line within a specific period. A Product Activity Report is a document that highlights on two specific factors: 1) It provides information on current product and inventory, and 2) shows how that product is selling (Point of Sale or POS data). This information allows businesses to better manage and plan their product inventory.

A sales analysis report / budget report:

A sales analysis report shows the trends that occur in a company's sales volume over time. In its most basic form, a sales analysis report shows whether sales are increasing or declining. At any time during the fiscal year, sales managers may analyze the trends in the report to determine the best course of action. Managers often use sales analysis reports to identify market opportunities and areas where they could increase volume. For instance, a customer may show a history of increased sales during certain periods. This data can be used to ask for additional business during these peak periods.

Variance analysis reports:

A variance analysis should be performed on an annual basis by all centres. The purpose of the analysis is to compare the estimated costs of a rate proposal to the actual costs for the same time period. This will aid centres in determining their variance between cost estimates and actual from year to year. Variance reports are due within 6 weeks of the approved rate cycle end date.

  1. Why is it necessary to document and record financial commitents?

Keeping records is one activity that is vital for the success of any business and its importance can never be overestimated. There is so much information in any business that you cannot hope to remember each and every detail. Right from sales to records of employees, incoming supplies, incoming and outgoing checks, repairs and maintenance, expense receipts, cash sales and attendance of employees, there is a wealth of information necessitating the maintenance of record books.

This will allow you to come up with the relevant information that you cannot recollect through your memory even after a considerable period of time. This becomes essential when your accountant is preparing financial statements near the end of a financial year and wants all the records from you or when tax authorities want some information about your business. You may not be able to come up with the information unless you have maintained proper record books.

Records are among the most important management tools. It is good that you are diverting all your energy towards generating more sales but never fail to keep documents in place. Maintaining records ensures that you are on track and do not have to suffer any losses because of any missing records. Record books help any business owner in maximizing returns from his business.


Describe how you could negotiate recommendations for necessary changes to agreed budget allocations in advance of requirements.

Be prepared:

A key aspect of any negotiation is to be completely and fully prepared with all the facts, examples and data that is required, as well as having a clear idea of what you want and need from negotiations process. it us imperative that all possible objections have been anticipated and there is information at hand to address such objections.

Pitch to the right people at the right time:

Nothing is more frustrating than developing and presenting a proposal to someone who ultimately cannot make the decisions required. It is far more efficient and effective to identify the right person to negotiate with directly. choosing at right time , both for the decision-maker and in the bigger context, is important. if you present your suggested changes too early, it can be seen as overreacting. alternately, if you leave it too late, it can be viewed as negligence in not highlighting issues in time for the most effective intervention to be considered, planned and implemented.

Build consensus:

Consensus building (also known as collaborative problem solving or collaboration) is a conflict-resolution process used mainly to settle complex, multiparty disputes. Since the 1980s, it has become widely used in the environmental and public policy arena in the United States, but is useful whenever multiple parties are involved in a complex dispute or conflict. The process allows various stakeholders (parties with an interest in the problem or issue) to work together to develop a mutually acceptable solution. Consensus building is important in today's interconnected society because many problems exist that affect diverse groups of people with different interests. As problems mount, the organizations that deal with society's problems come to rely on each other for help -- they are interdependent. The parties affected by decisions are often interdependent as well. Therefore it is extremely difficult and often ineffective for organizations to try to solve controversial problems on their own. Consensus building offers a way for individual citizens and organizations to collaborate on solving complex problems in ways that are acceptable to all.

Activity 4.

What is a Milestone? Describe how milestons can be linked to performance management.

Milestones are tools used in project management to mark specific points along a project timeline. These points may signal anchors such as a project start and end date, a need for external review or input and budget checks, among others. In many instances, milestones do not impact project duration. Instead, they focus on major progress points that must be reached to achieve success.

A small business may manage many of its non-routine tasks as projects. Such project work accomplishes a variety of business objectives, including setting up a new production line and implementing accounting software. When a company relies on projects to accomplish critical goals, its competence in managing project-related work influences the success of the business. In turn, the company's effectiveness in managing projects depends on its ability to complete the major deliverable events – the milestones – of the project. As a result, monitoring and control, which identifies issues and initiates corrective actions, is a critical project management process. Milestone control is a key control activity.


You have examined the budget reports and have discovered that in the first quarter reporting, one section has spent over 75% of their budget allocation. What will you do and should you be concerned about this?

Over spending occurs in some sections or departments and cuts are not made. then it is possible that the organization will not be able to meet its financial or operating obligations later in the financial period. this could compromise future spending requirements into that new budget might attempt to compensate for the overspending.

This does not mean that lower than expected expenditure is a positive sign. the expenditure indicated by a budget is that which is calculated to ensure the best allocation of resources. if spending is low could mean, for instance, that clients are not receiving the level or the type of care necessary. this could be because management is attempting to save money on staff or other costs. It might also mean that the organization is not meeting the performance standard that are part of funding agreements. in such cases, lower than expected levels of expenditure could jeopardise future revenue.


1.You might need to conduct some research of you own to complete this activity. Briefly describe what each of terms refer to:

  1. Assets:

An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. Assets are reported on a company's balance sheet, and they are bought or created to increase the value of a firm or benefit the firm's operations. An asset can be thought of as something that in the future can generate cash flow, reduce expenses, improve sales, regardless of whether it's a company's manufacturing equipment or a patent on a particular technology.

  1. Liabilities:

A liability is a company's financial debt or obligations that arise during the course of its business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses.

Liabilities are a vital aspect of a company because they are used to finance operations and pay for large expansions. They can also make transactions between businesses more efficient. For example, in most cases, if a wine supplier sells a case of wine to a restaurant, it does not demand payment when it delivers the goods. Rather, it invoices the restaurant for the purchase to streamline the drop-off and make paying easier for the restaurant. The outstanding money that the restaurant owes to its wine supplier is considered a liability. In contrast, the wine supplier considers the money it is owed to be an asset.

  1. Expenses:

An expense consists of the economic costs a business incurs through its operations to earn revenue. Businesses are allowed to write off tax-deductible expenses on their income tax returns to lower their taxable income and thus their tax liability. Common business expenses include payments to suppliers, employee wages, factory leases and equipment depreciation, but the Internal Revenue Service has strict rules on which expenses business are allowed to claim as a deduction.

  1. Equity:

Equity is the difference between the value of your property and how much you owe on it.

  1. What determines the way in which you present data?

It is likely that there will be occasions when you have numerical information that you want to include in your work, for example figures and other statistics from secondary sources (such as books, journal articles or newspaper reports); the results of experiments; or data that you have collected and analysed as part of a project or dissertation. Such information can be used to illustrate an argument or convey complex or detailed information in a concise manner.

Activity 7.

  1. Why is it important to compare actual income and expenditure figures against budget figures at regular intervals?

Accounting records can be used to calculate gross margins on product lines to determine which product contributes the most to the bottom line and which are underperforming. gross margin is calculated by taking cost of goods sold from sales. Comparing a product line's gross margin to budgeted and previous figures will inform the business how the product is performing.


Why do organisations need accurate and timely financial information? What information is required to manage the organisation's finances? Who is usually responsible for an organisation's financial management?

Financial statements are so much more than year-end tax reporting. Monthly reports are a key indicator to smart business people as to how they are performing, and how they can improve. If you own a small or medium sized business, you surely work very hard. Shouldn’t that hard work translate into measurable success? Accurate financial statements provided no later than ten days after the end of the month will allow you, the smart business owner, to make appropriate course corrections that will enable you to realize the success your hard work deserves.

Each member of the committee (or board) of an incorporated association is jointly responsible for managing the finances of the organisation. This means all committee members need to understand the organisation’s financial obligations and participate in making decisions about your organisation’s finances.


What are the guidelines that should be followed if budgeting is to be associated with performance monitoring?

A budget is defined as management's quantitative expression of plans for a forthcoming period. Budgets are prepared at various levels of an organization. The master budget is defined as the overall financial plan for the period, which reflects the organization's goals and objectives. The master budget includes operating and financial budgets. Operating budgets show the company's planned sales and operating expenses. Financial budgets reflect financing plans such as borrowing, leasing, and cash management. Budgeting, when done properly, can serve as a planning and controlling system. The company's goals and performance objectives are documented in financial terms. Once formulated, these plans are used throughout the year. Monthly performance reports compare budgeted results with actual results. To control operations, management can examine the performance reports and take necessary corrective actions. The role that effective budgeting plays in the management of a business is best understood when it is related to the fundamentals of management. The many existing definitions of business management can be expressed in terms of five major functions: planning, organizing, staffing, directing, and controlling. Management must first plan. The plan is executed by organizing, staffing, and directing operations. To control operations, management must institute appropriate techniques of observation and reporting to determine how actual results compare to plans. Budgeting is concerned primarily with the planning and controlling functions of management.


What does forecasting involve and what does it enable?

Forecasting is the use of historic data to determine the direction of future trends. Businesses utilize forecasting to determine how to allocate their budgets or plan for anticipated expenses for an upcoming period of time. This is typically based on the projected demand for the goods and services they offer.\


Describe the principles of double entry bookkeeping.

The basic principle of double entry bookkeeping is that there are always two entries for every transaction. One entry is known as a credit entry and the other a debit entry.

The double entry bookkeeping principle is profoundly important in the world of accounting. It is essential that students of accounting gain an understanding, from the outset, of this principle that is more than 500 years old. This best way to explain the double entry bookkeeping principle is to give an example of transactions from the books of the imaginary organisation called Lots of Fun Pty Ltd. For example:

Lots of Fun Pty Ltd purchased a car for $5,000 using a loan from the bank, the two effects are:

  1. Lots of Fun Pty Ltd acquires an ASSENT worth $5,000 (the car). This is the debit affect.
  2. At the same time it also incurs a LIABILITY to the bank of $5,000 (the bank loan). This is the credit effect.


What is the purpose of data collection and what role does statistical analysis play?

The purpose of collecting data is to answer questions in which the answers are not immediately obvious. Data collection is particularly important in the fields of scientific research and business management.

Statistical analysis involves collecting and scrutinizing every data sample in a set of items from which samples can be drawn. A sample, in statistics, is a representative selection drawn from a total population. Statistical analysis can be broken down into five discrete steps, as follows:

Describe the nature of the data to be analysed.

Explore the relation of the data to the underlying population.

Create a model to summarize understanding of how the data relates to the underlying population.

Prove (or disprove) the validity of the model.

Employ predictive analytics to run scenarios that will help guide future actions.

The goal of statistical analysis is to identify trends. A retail business, for example, might use statistical analysis to find patterns in unstructured and semi-structured customer data that can be used to create a more positive customer experience and increase sales.

FNSACC402 Activities 3


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