BUDGETING

Your Future

Budget and Forcasting

You will compare your future – going to work right after high

school or entering the workforce after college.

What do you think will happen?

BUDGETING – Review HandoutTerms

Financial PlanningBudgeting and forecasting skills are fundamental to the financial planning process, and to estimating and tracking revenues and expenses for both businesses and individuals. CPAs provide a variety of services, including financial planning, that utilize and interpret financial information.

RevenueMoney that is earned and received, or will be received at a future date. ExpensesCosts associated with a particular activity that require the payment of cash now or at a future date.

Briefly describe the business and highlight its purpose. It must contain the most important information from the business plan.Write the summary last, but place it in the beginning of the plan

Profit-Net IncomeWhen revenues exceed expenses – net income is the label used because it is income net of expenses.Loss or DebtExpenses exceed revenues.

Forecasting Preparing budgets for the long term. Typically prepared for the next 3-5 years.Retained Earnings –Worth or Value Companies will report their net income or net loss at the end of the year, this will be added to the prior year’s net income or loss, the resulting figure is the retained earnings.

Expenses

• Sample Equation

• Clothing= $1,300 for the year, increases 4% each year.

• First year = 1,300 x 1.04 = $1,352• Second year = 1,352 x 1.04= $ 1,406• Third year = 1406 x 1.04 = $1,463

Complete financials for both teenagers for the first 4 years.

BUDGETINGProjecting Increases in Expenses and revenue

BUDGETINGYears 5 - 10

• Diane graduates from college and lands a job with an accounting firm, starting at 35k per year.

• Forecast years 5 – 10 for both Diane and Jack using the assumptions.

For Diane

• Jack is in the same situation since he graduated from high school.

• Forecast the next 5 – 10 years.

For Jack

Assumptions – Diane – Revenue increases 10% each year over the prior year and all expenses except the car payment increase 4% each year over prior year. Car payment is made for 4 years starting in year 5.Jack – Same assumptions as in the first 4 years.

BUDGETINGCUMULATIVE ANSWERS

Jack 1 2 3 4 5 6 7 8 9 10

Total Expenses

17,900 18,424 18,969 19, 536 15,325 15,938 16,576 17,239 17,928 18,645

Savings/Debt

3,500 3,618 3,734 3,849 8,761 8,870 8,977 9,081 9,181 9,277

Cumulative Savings/Debt

3,500 7,118 10,852 14,701 23,462 32,332 41,309 50,390 59,570 68,847

Diane 1 2 3 4 5 6 7 8 9 10

Total Expenses

24,350 24,832 25,324 25, 825 22,700 23,358 24,042 24,754 19,244 20,014

Savings/Debt

(9,150) (10,632) (11,124) (11,625) 12,300 15,142 18,308 21,831 31,999 36,354

Cumulative Savings/Debt

(9,150) (19,782) (30,906) (42,532) (30,231) (15,089) 3,219 25,050 57,059 93,403

BUSINESS PLANManagement Team

Review Final answersWhat year is the disparity in savings/debt the largest?

What year does Diane accumulate savings equal to that of her high school classmate?

Which student will save $100,000 first?

Compare year 4 to year 10 for both, what trend do you see developing?

What is the value of education?