Documente Academic
Documente Profesional
Documente Cultură
at
by
Osuna, Jason D.
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First and foremost, we would like to express our sincere gratitude to our professor, Mr.
Demetrio Asacta, for continuously guiding and supporting us to make this study a success. His
patience, motivation and knowledge helped us a lot in conducting this study. We could not have
imagined having a better advisor and mentor for this study.
This study is dedicated to our family and friends who were always there to serve as a motivation
and strength to all of us. We could not have done this without them. Their mere presence and
support were enough to keep us going.
And above all, we would like to thank God for always guiding us and for always uplifting our
spirit to push ourselves despite the hardships that we have encountered while conducting this
entire study. We would also like to dedicate this study to Him for He has always been our
strength…
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Table of Contents
Page Number
Title Page 1
Acknowledgement 2
Table of Contents 3
Chapter I: Introduction
Background of the Study 5
Statement of the Problem 6
Objectives of the Study 7
Significance of the Study 7
Scope and Limitations of the Study 8
Rationale of the Study 8
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Usage ofBudgeting
Responsible in Preparing theBudget
Person in-charge for the Budget has Knowledge in Accounting
orManagement
Reasons for not PreparingBudget
Role of Budgeting in anEnterprise
ChapterVII:Recommendations 67
ChapterVIII:References 68
ChapterIX:Appendix 71
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Chapter I
Introduction
The footwear industry, just like any industries, are easily affected by many economic
changes like product innovation, trends, changes in supply and demand and any other factors
that contribute to the risks that the company faces. Due to these uncertainties, there is a
strong need for a business to manage its scarce resources efficiently and effectively for them
to prevent bigger consequences that may arise in the future. This is where the role of
budgeting takes place. Budgeting has been established as an important tool in the planning
and control processes of management. It helps the company achieve its goals for it allows
them to oversee, plan, schedule and assess its operations. Internal Control is also an
important aspect in management. It is all about managing risks that are inevitably present in
our economy. Through internal control, management can assure compliance with laws,
regulations and policies while they make ways to achieve their organizational objectives.
which provided a brief history about the downfall of the footwear industry, that in 1994
there was a plea from the footwear groups about their concern on the importation influx of
cheap goods from China (holding the 80% of the total import of footwear in the Philippines)
that they believed that it will surely affect their industry. From year 1997 to the present,
there is a rise of 212.79% with regards to import volume and the value however went down
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happened, the price of the product sold in domestic markets are not only cheap but are priced
beyond cost. Many support the idea of having exportation as a solution to this downfall but a
dilemma between pursuing that path or just thrive and stimulate the domestic demand. Once
the exportation is pursued, a question about what would they do when exportation went
slow?
This study investigated the budget control and execution of manufacturing in the
footwear industry concerns in the Philippines with a view of appraising their efficiency. This
study shall also focuses on how effectively these businesses are on using budgeting in
implementing control, if they achieve the profit or goal established in their budget. The
organizations and businesses have scarce resources, and these resources impose limits on the
number of extent and range of end result the organization was set toachieve.
Budgeting plays an effective role in achieving organizational goals, in this sense budgets are
ways through which one can reach the goals set. In budget development process one tries to
foresee whether strategic goals can successfully be reached or not. Budgets set standards to
achieve goals and help in evaluating the fluctuations occurring during the year and determine the
Despite budgeting process being in place in many organizations, there are yet many
organizations that are not still or have not had any intention of implementing budgeting in their
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business. It is upon this issue that this study is based on. This study will make an analysis on the
to attain the following objectives: 1.) To find out whether or not footwear business use
budgeting to show transparency in preparing budgeted cash flows. 2.) To find out if
Budgeting helps in the Footwear Businesses manage their Internal Control in terms of
making a budget.
The findings of this study will benefit the footwear manufacturers and retailers and the
researchers as they can be aware on how budgeting plays a vital role in an industry’s long-
run, to make the students knowledgeable on the proper management of a business with
regards to internal control, make bystanders conscious of the impact of their demand to
imported goods rather than domestic ones, and those people that are engaged in a
overlooked and taken for granted by the management--thinking that it should be as simple as
analyzing where your resources would go, that it should not be overly-complex. Through
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this study, the management will be guided and reminded of how vital budgeting is to the
success of a business, how it plays an important role in order for management to manage its
This study will focus mainly in defining budgeting as an essential tool for Internal
Control in the Footwear Industry. This will entail visits in different places that cater this
industry as its local business in order to gather information relative for the study. The study
will also include a number of respondents who has long been engaged in the footwear
industry. Due to financial and time-related constraints, the study is limited only to visit in
Liliw, Laguna with the hope of gathering information that are enough to reach the objectives
of the study.
The findings that this study will provide will help this study in terms of resolving
questions when it comes to budgeting as a tool of internal control in the footwear industry,
whether budgeting has been effective to the business in achieving the goals set for the long
run.
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Chapter II
A. TheLiterature
I. GeneralInformation
Budgeting is the process of creating a plan to spend your money. This spending plan is
called a budget. Creating this spending plan allows you to determine in advance whether you will
have enough money to do the things you need to do or would like to do.
According to Mark A. Covaleski, John H. Evans III, Joan L. Luft, Michael D Shields
(2007) in their research entitled “Budgeting research: three theoretical perspectives and criteria
for selective integration”, budgeting is one of the most extensively researched topics in
management accounting and has been studied from the theoretical perspectives of economics,
psychology,and sociology. Thus, budgeting offers opportunities for research that chooses
between competing theories from these perspectives or combines theories from different
perspectives if they are compatible, to create more complete and valid explanations of the
In the research done by Izzettin Kenis (2017) entitled “Effects of budgetary goal
attitudes (job satisfaction, job involvement, job tension), budget-related attitudes (attitude
cost efficiency, job performance) for 169 department managers at the plant level who have
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budget responsibility. The results show that budgetary participation and budget goal clarity tend
to have positive and significant effects on job-related and budget-related attitudes of managers.
Participation and goal clarity, furthermore, were found to have significant influence on budgetary
performance of managers. High level of budget goal difficulty was found to have an adverse
effect on attitudes and performance of managers. Effects of budgetary evaluation and feedback
on attitudes and performance of managers, on the other hand, were found to be weak or
insignificant.
Stated by PL Joshi, Jawahar Al-Mudhaki and Wayne G Bremser (2017) in their study
entitled “Corporate budget planning, control and performance evaluation in Bahrain “ examines
questionnaire survey of 54 medium and large sized companies located in Bahrain. Most of the
companies prepare long-range plans and operating budgets, and they follow a definite budget
ability, for timely recognition of problems, and to improve the next period’s budget. While both
the listed and non- listed companies have reported many similar budget practices, the main
differences were specific purposes served by budgets, degree of budget participation, periodicity
of variance reporting, and purposes and authority to evaluate budget variance reports. In certain
cases, firm size influences budgeting practices. Contributes toward filling a gap in the literature
on the use of budgets as a planning and control tool in developing countries. Most prior studies
were mainly confined to advanced countries. The study findings suggest the need for research on
attitudes held by the budgeters towards the use of budget variances in the context of advanced
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According to Jims bookkeeping (2005) budget helps one to determine their activities
for the time period specified. Of course no budget will ever be 100% accurate but it is still an
essential tool for keeping track of sales and costs and knowing what to focus on – e.g.
whether to increase marketing if sales are low, trim costs where they are too high, and so on.
In essence, it works as a framework and control mechanism for finances and cash flows.
Every business should have a clear plan and a budget – even a micro-business. It doesn’t
have to be elaborate, but it does need to define the business so one can keep it in the direction
One should also pay attention to its sales cycle. If a company has an off-season they
have to account it. According to Scranton if one knows its business has slower times, one
should have extra money in the bank during those months. The budget will never be static or
consistent. For small businesses owners, they take time to learn the cyclical nature of the
business as seasonal trends naturally affect budget and the whole organizations efficiency.
"Regularly revisiting your budget will help you better control financial decisions, because
you will know exactly what you can afford to spend versus how much you are projecting to
make," (Cho,2018)
why a small business should set a budget: it sets targets, strategy requires funding, money
allocated for aging facilities and equipments, it communicates priorities, control spending,
eliminate turf wars, and it provides a profit margin. Budgeting is the foundation for all
business success. Budgets help with both planning and controlof the organization's financial
resources. Business planning requires making decisions about strategy and determining
business priorities. Controlling ensures that plans and objectives are achieved through
managementof
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the implementation process. If there is no control over spending, planning is futile and if
As stated in the article written by Atom Content Marketing (2009) there are ways to
help a business flourish by having a well-planned budget. All businesses, no matter how
small, can benefit from a well-thought-out budget. It can help one control spending,
maximize its resources and head off cashflow problems before they have the potential to
harm the business. First step when working out a budget is to collect information on past
sales and costs. These will be the foundation for the forecasts, so the information needs to be
as full and accurate as possible. Speak to employees with the information needed – especially
if they’ll be responsible for managing the budget (in part or in whole) in the future. Involving
them at this early stage will also encourage them to commit to the budget. It is also well
worth asking for their opinions on where costs could be reduced or better managed, and how
to improve sales.
Gaebler Ventures (1992) elaborated the most common budgeting mistakes; one of those
mistakes is no budgeting. No budgeting is the biggest budgeting mistake for small businesses is
not to do it at all. It's like driving a car when one can only see two feet ahead of the front
bumper. Bills are coming in, checks are coming - and there's a chronic mode of juggling one
against the other with no sense of overall profitability or predictability of the future. Another one
is failure to systematize budgeting. If someone gotten to a certain size of business and don't have
written instructions on the budgeting presses, stop the assembly lines and take a time out. Get the
processes in place so that every year everyone knows what's expected of them and how the
budgeting process will play out. Unable to monitor the budget is also one of the mistakes. If one
don't compare to actual and revise it frequently, they are are missing the point of budgeting.
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Budgeting should be more like clay than cement. Flexibility has to be built into theprocess.
reporting, and compliance with laws, regulations and policies. A broad concept, internal
The article in Forbes written by Jeff Thompson (2015) entitled “The Importance of
Internal Controls” wherein an interview with Susan Maddux, a controller and director of
accounting at the Country Music Hall of Fame, was conducted; this demonstrated the
objectives. Accordingtothearticle,internalcontrolisdefinedasacriticalprocessinachieving
effectiveness and efficiency of the operations conducted, creating reliable financial reports,
and compliance with the internal rules and regulations. Maddux also concluded that big data
has a big impact on managing and monitoring internal controls, having the data can be a
useful tool but dangerous once held and used incorrectly or maintained in an uncontrolled
different scholarly works. According to Annie Scranton (2017), owner of Pace Public
Relations, businesses of all sizes experience financial fluctuation, so it's important to plan
ahead."If you don't budget and save accordingly, you'll be in a bad way your company takes
a downturn or even has an off month," she said. "You have to account for slow payments,
and budgeting can help alleviate the financial burden you may feel while waiting for a check
to arrive." "A proper budget is far too important and there are too many variables for this
responsibility to fall on one person’s shoulders," said Nate Masterson, marketing manager for
MapleHolistics.
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In the paper entitled Internal Control and Operational Efficiency (2018), the
researchers (CHENG, Qiang; GOH, Beng Wee; and KIM, Jae Bum) examined whether
accelerated filers that reported internal control opinions under SOX 404 during the period
2004-2013 and frontier analysis to measure operational efficiency, we find that operational
efficiency is significantly lower for the 22 firms that disclose material weaknesses in internal
control than for other firms. This finding holds after controlling for factors associated with
three sets of cross-sectional analyses to provide additional insights. First, we find that the
firmswhere managers’ demand for high quality internal information for decision making is
more salient, proxied for by high ROA volatility and low trading volume. Second, we find
that the negative effect of internal control on firm operational efficiency is stronger for firms
with more severe internal control material weaknesses: (1) material weaknesses related to
information technology and accounting personnel with adequate expertise, and (ii) material
weaknesses related to core accounts (e.g., sales, cost of goods sold, fixed assets), which are
more likely to have a pervasive effect and lead to errors in the internal reports that managers
rely on to make operational decisions. Finally, we find some evidence that the effect of
internal control material weakness on firm operational efficiency varies with firm size, with
smaller firms benefitting more from effective internal controls in terms of firm operational
efficiency than other firms. It also the implications of internal control beyond financial
reporting (e.g., Cheng et al. 2013; Feng et al. 2015; Bauer 2016) the debate on the costs and
benefits of SOX 404 reporting, which is relevant and timely given that regulators have
recently granted non-accelerated filers permanent exemption from SOX 404 (b) under the
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Dodd-Frank Act on grounds of high compliance costs. One implication of our study is that
the greater operational efficiency achieved from having effective internal control can
Every business has risks involved; each of them can financially affect the business.
Paul Cho, CEO of Align Income Share Funding elaborated that businesses should consider
the short and long term risks in order to accurately plan their financial
your risks. "This is a great baseline to figure out how liquid your company really is," she
said. "If you're making money, then you're able to at least set aside a portion for savings, or
Small business entities are is an independently owned and operated company that is
limited in size and in revenue depending on the industry.According to Cheryl Conner (2018)
that cash is king! We’ve all heard this maxim and it is truer today than ever before. A
healthy profit may look nice on financial statements, but if capital expenditures or receivable
collections are draining the cash, one won’t be able to stay in business for long. Too often
executives and small business owners fail to focus enough on cash flow generation. In order
to head off this problem, businesses must either be adequately capitalized and must shore up
cash reserves to meet all obligations as they are needed and to handle downturns and
emergencies that may arise. Cash management becomes even more important during
recessionary times when cash is flowing more slowly into the business and creditors are less
lenient in extending time to pay. For small businesses, handling business accounting and
taxes may be within the capabilities of the business owners, but professional help is usually
a good idea. The complexity of a business’ books go up with each client and employee, so
getting assistance with managing cash and the bookkeeping can allow you to excel when
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others are calling it quits. Cash flow challenges are exacerbated by the lending climate,
particularly for small businesses. Bankers are unlikely to be more liberal in their lending
Acoording to Neal Frankle,CFP, (2010) “No matter how small your business is, you’ll
gain a lot by budgeting. When I started in business 30 years ago I didn’t pay much attention to
my budget as long as I had a positive bank balance. That was a huge error. As a result of
ignoring my budgeting I didn’t really know what was working or what needed my attention. In
fact, I didn’t really even know if my business was profitable or not or if it was worth it to be
independent or not until I started tracking my numbers. I was lucky. Many people who ignore
budgeting end up going out of business because of it. Don’t let this happen to you Pilgrim. Let’s
An article by Eddy hood (2014) is about small business budget explains that not having a
small- business budget is like driving blindfolded. “Sure, you might not have hit any bumps in
the road yet. However, to really see where you are, where you’re going, and how your business
is performing, you need a detailed, accurate, frequently updated budget. With it, you can watch
the scale tipping between income and expenses, make judgment calls on what should be cut, and
The article entitled (Mark A. Covaleski, John H. Evans III, Joan L. Luft, Michael D
Shields, 2007) “Budgeting Research: Three Theoretical Perspectives and Criteria for Selective
Integration” presented evidence for the method they used for researching in budgeting. They
demonstrated on collecting data about the background of budgeting itself, focusing on three
social science theoretical perspectives where economical perspective is included. The researchers
made a table having different focal points which they focused on namely having primary
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research questions, level of analysis, rationality and equilibrium assumptions, the budgeting and
non-budgeting variables.
Casual model from K.A. Merchant presented the design of corporate budgeting system if
internal control strategy is thus related to corporate context or an analysis that considers the
entire environment of a business, its internal and external environment. P. Brownell discussed
when participation in the budgeting process works and when it does not. He concluded that
and then to organizational effects. Using Hackman and Porter's [1968] motivation measure and a
Behavior Questionnaire, the hypothesis was confirmed for measures of bothintrinsic and
extrinsic motivation. The relationship between participation and attitude towards the budget
University and Gubkin Russian State University of Oil and Gas (2016), entitled Budgeting-
based Organization of Internal Control, used methodical basis of research that uses general
scientific principles to have a more comprehensive and systematic approach in order to further
understand the irregularities in our economy that greatly affect how a company uses budgeting as
an instrument of Internal Control. Examples of this scientific techniques and methods are
objects, comparative evaluation and SWOT analysis. Another methodological approach used as a
basis in this study is the Efficient Internal Control System which is part of the Corporate
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Management Theory (Eickhof&Kreikenbaum, 1998). In order to extract a reliable feedback,
researchers of this study had incorporated active systems theories with the theories of
management anddecision-making.
The State of Delaware-Office of Management and Budget (2017) had conducted a study
entitled Budget and Accounting Policy Internal Control which paid much attention on finding
ways for them to achieve their organization’s mission and they thought
Integrated Framework (COSO Framework) for Organizations to use in the assessment of internal
control as adapted by the Government Accountability Office (GAO) Standards for Internal
Control in the Federal Government issued September 2014. According to a study entitled
Gender, Trade and the Philippine Footwear Industry, authored by Ma.Gichelle A. Cruz of
Marikina City, started to decline when the Philippines became part of the World Trade
Organization in 1995. Since then, the footwear industry in the Philippines has been dominated by
imported footwear brands from China, Korea and Taiwan. From 1997 to 1999, the country
imported an average of 38.5 million pairs of shoes and by 2001 to 2003, the average volume
increased to 56% or 60.2 million pairs. This only goes to show that if only Filipinos have the
heart for their own products, and if only they wouldn’t patronize imported products that much,
the Philippine footwear industry would not have been in this state that they’re in.
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D.D Assey (2014) discussed how important budgeting is. It is recognized as one of the
major tools for implementation of the objectives and policies of the organization. A correct and
well-planned budgeting will help a company to establish the right goals and objectives as well as
the right time frame to accomplish those goals and objectives. Based on their research there are
various types of budgeting methods that entities can use in establishing their goals and objectives
but among those budgeting methods, where flexible budgeting method is the method that best
suits a footwear business. A flexible budget calculates different expenditure levels for variable
costs, depending upon changes in actual revenue. The result is a budget that varies, depending on
the actual activity levels experienced. Actual revenues or other activity measures are entered into
the flexible budget once an accounting period has been completed, and it generates a budget that
is specific to the inputs. The budget is then compared to actual information for control purposes.
Alongside with this budgeting method is the use of proper costing method because it is
costs. According to the Center for Business Administration, Central University of Jharkhand,
Ranchi, India, (2017) compared to Traditional Costing System ,ABC costing system is a more
effective costing method that can be applied in a manufacturing industry for it helps managers of
the organizations to evaluate internal process of the enterprise, estimate accurate product and
opportunities, set better budget allotment, initiate cost minimization procedure and establish an
efficient resource requirement plan. Principally, ABC is a two stage method for assigning
overhead costs to product units based on cost drivers at different levels of activity unlike in the
traditional costing system where a predetermined rate is used to allocate overhead costs thus it
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treated all cost as a single pool of indirect cost.Center for Business Administration, Central
University of Jharkhand, Ranchi, India (2017) have made some accounting and budgeting
manufacturing 17 variants of slippers coded as AB, AE, AF, AT, BO, CA, CO, CL, DY, KE,
LD, NC, PH, SY, TO, TS and YS. Having a company that has several products usually needs
more than two activities in their manufacturing process and that is the main reason why each and
every activity required manufacturing those 17 footwear variants in BNL Limited are critically
analyzed and grouped into 17 homogeneous activity cost pools. It is observed that batching
(sole), mixing of raw materials, sheeting (sole), sole pressing, sole cutting, drilling, cleaning,
batching (strap), kneeding, accelerator mixing, sheeting (strap), strap pressing, strap cutting,
strap fitting, inspection and quality control, and administration are the 16 activity pools required
for production of all categories of slipper. Additionally, printing is observed as an activity pool
that is required besides the above-mentioned activities for production of AF, AT, BO, CL, DY,
Planning is the first function of management and it is by which the companyobjectives are set
and achieved. Forecasting plays an important role in the management and it includes both
A budget is defined as “a stable plan for a certain period, expressed in financial terms and
that specifies the resources allocated to achieve the objective of that period, and also the
responsibilities entailed for achieving that objective” (Russu 1993). AccordingAnthony (1988)
1. Motivatingmanagers;
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3. Obtaining a commitment ofmanagers;
The budget remains a management tool and almost all businesses or organizations set a
budget. Improving budget preparation results to enhanced efficiency in meeting its daily
objectives and future goals. Aside from these, budget enables the company to improve
communication with investors, strengthen its credibility and obtain confidence in the market.
Alain Burlaud and Claude Simon (2008) mentioned that one of the limitations of
budgeting is based on the fact that budgeting involves dividing an enterprise into centers of
responsibility to which objectives are assigned and those responsible arejudged depending on
compliance with the budget. In this case, performance is judged based on how well they
minimize their expenses and not how well they perform on their specific jobs.Another limitation
results from the fact that complying with the budget often becomes an end in itself. Limitations
of budgeting also arise from the fact that abnormalities inbudgeted values occur due to changes
purpose of the budget. Thus, if budget is made for the purpose of planning, these people have an
interest in high budget targets to obtain extra resources in order to achieve their goals. If budget
is used for the purpose of motivation, these people will choose to minimize their goals in order to
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Budget is a detailed plan defining or outlining the sourcing and uses of financial and
other resources of the company in a given period of time. This is the plan expressed in a
quantitative terms. Every organization or individual has to budget their scarce resources to make
the best use of such resources (time, money and energy). Owners of successful small companies
who survived and grew even in difficulteconomic times carefully planned or budget their
inventory, purchases, expansion of facilities, and even financial transactions so that they do not
over extend themselves and yet was able to meet customers’ needs. Developing a budget is a
critical step in planning any economic step in planning any economic activity both profit oriented
standard, and taking corrective measures or actions when operations do not conform to what is
expected. Managers must exert their best effort to achieve what was planned (Payongayong,
2006).Budgets are more commonly used in large companies which usually have formal and
sophisticated budgetary systems. Most firms use budgets because they are aware of the
advantages that may be derived from budgeting such compelling periodic planning,enhancing
the organization as well as a whole are formally established and incorporated in the budgets
(Roque, 2011).
Everyone uses the word budget as if it were an all cure for financial problems of an
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enterprise. However, a budget is simply a plan and specific management actions are needed to
people want to make things happen, they have to plan. Once they have the plan, they are in better
control of the inertia of the past and of the unknown forces of the future. But planning alone is
not enough, control is also important. It is a process of comparing actual performance versus
budget. These two represents the key features for the management to undertake “control by
exception” (Caasi,2005).
Almost large organization used several budgeting systems as a tool in achieving better
profits by minimizing cost however; it has certain limitations that should be considered.Alain
Burlaud and Claude Simon (2008) mentioned that one of the limitations of budgeting is based on
the fact that budgeting involves dividing an enterprise into centers of responsibility to which
objectives are assigned and those responsible are judged depending on compliance with the
budget. In this case, performance is judgedbased on how well they minimize their expenses and
not how well they perform on their specific jobs.Another limitation results from the fact that
complying with the budget often becomes an end in itself. Limitations of budgeting also arise
from the fact that abnormalities in budgeted values occur due to changes in unexpected
conditions and it is often a product of a poor forecast and poor management performance.Since
part of their research, they identified 12 significant weaknesses of traditional planning and
budgeting practices. These factors fall into three principal categories and can be listed as follows
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B. Theoretical and Conceptual Framework of theStudy
OperationalFramework
With the assumption that budgeting application has significance in Liliw, Laguna’s footwear
industry, a diagram below has been developed to further elaborate the operational framework of the study.
This framework merges the a) Independent variable which is budgeting and b) Dependent variable, the
1. ROLE OFBUDGETING
ImprovedCommunication
Accountability
Financial Control ofInputs
Planning andCoordination
2. Contributions of Budgeting
Application on GrowingActivities
Financial Performance
EfficiencyMeasures
Effectivenessin
implementation MoreProfits
Commitment
Planning andCoordination Growth
Control
3. The relationship
between theroleof
budgeting and financialperformance
Financial Planningand
BusinessControl
Productivity (outputs&
inputs)
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In the conceptual framework approach, which has its key issues as the historical and
institutional basis of the functioning of budgeting and the institutional characteristics that arise in
analytical framework prepared was used to study situations that reflect precisely the salient
relationship of the variables within which, operated during the study. The variables are defined
between budgeting and financial performance. The type of relationship they generate play a
Theoretical Framework
Every company, big or small, to insure profitability must promote internal control.
and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.
One of the main tools to promote internal control is through a budget. A budget is an estimation
of revenue and expenses over a specified future period of time. In companies and organizations,
a budget is an internal tool used by management. However, despite the vital role budgeting plays
in the Internal Control of the company, it is often overlooked and disregarded by small business.
This study aims to influence small footwear businesses to use a budget as a means of internal
control.
The type of budget that an entity needs to use would be based on the following, (1) Size
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Under size of the company there are two things to consider (a) Financial Stability of the
company and (b) Economic stability of the company. Financial Stability pertains to being able
to stably facilitate the smooth flow of cash funds in relation to the revenue that the company
makes relative to its liabilities and expenses; while, economic stability pertains to the
company’s ability to adapt with the changes that the market could go through in the foreseeable
future this is with respect to going concern principle of accounting. After considering the
financial stability and economic stability of the company, the next thing that a company should
take into account in using a budget is the historical performance of the company. This will
include reviewing past records of the performance of the company in terms of sales, revenue,
costs and any other financial aspects related to budgeting. The historical records of the company
will be the basis of the budget plan for it will show the pattern and trend of performance of the
company.
Through this framework, business owners engaging in the footwear industry would have
greater understanding and leverage on how to maximize their expenses versus their desired
outcomes. These outcomes could be in the form of their vision of what the business entity should
be in the near future or it could be based on how profitable the business entity should be. They
can also assess whether their company performs in a manner they planned it to perform.
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Economic
Stability
Size of thecompany
Financial
Stabilityofthe
company
Probability that a
company will use
budgetingasatoolofi
nternal control
Historical
Natureofthe
performance
industry
of the
company
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CHAPTER III
Methodology
3.0 Introduction
The chapter was divided into research design, location of the study, population of the
study sample size, research instruments, data collection methods and data analysis
3.1 Researchdesign
The research was based on quantitative research designs. A case study was chosen as the
most appropriate research strategy. Saunders et al (2003) define a case study as “a strategy for
phenomenon within its real life context using multiple sources of evidence”. This fitted well with
the researchers’ intention to investigate a real life issue through a variety of data collecting
methods. The qualitative research design was descriptive in nature and enabled the researchers to
meet the objectives of the study. A statement was used to assign variables that would not
adequately be measured using numbers and statistics. This approach was adopted to enable the
researchers get and analyze relevant information concerning people’s opinions about the role of
budgeting in the internal control and financial performance of the footwear businesses in Liliw,
Laguna.
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3.2 Location of the study
The study focused on the role of budgeting in internal control of businesses with specific
reference to Liliw’s footwear industry. Liliw is considered as the Tsinelas Capital of the
Philippines. The researchers chose Liliw’s footwear industry to know whether businesses do
budgeting and what kind of budgeting they are using. With these information, we will conclude
the effect of budgeting in the internal control and financial performance of the business.
The researcher conducted the study in Liliw’s footwear industry which had a total of 50
respondents. The researchers used a sample selected from the study population as representative
sample of the entire study population of 70-80. This selection of sample size helped the
researchers to minimize resources such as; time and money in addition to other resources.
3.4 ResearchInstruments
3.4.1 Questionnaire
collect data from a specific population or a sample from that population. Questionnaires are
commonly used as research instruments because of the distinct advantages they yield (Leary,
1995). The researchers therefore chose a descriptive research methodology and designed a
46
3.5 Data collection methods
The study incorporated the use of various methods in the process of data collection in a
bid to come up with sound, concrete and credible research findings. The researchers therefore
combined the use of questionnaires and interviews in the process of collecting primary data.
3.5.1 Questionnaires:
The questionnaire is a set of questions to which the respondents were allowed to fill the
questionnaire in their own time and this made respondents feel free to give answers to sensitive
questions. The questionnaire tool collected data from the Liliw’s footwear businesses from the
study population. The questionnaire tool of data collection was chosen because it was cheap to
administer to respondents scattered over a large area and at the same time the method provides
3.6 DataAnalysis
Data editing: Editing involved sorting of the collected information in order to get information
that was relevant to the study variables. At this stage all the responses looked through by the
researchers while writing the useful information and ignored the useless as was provided by the
respondents.
Coding: after the data has been edited, it was then presented in form of tables, graphs and pie
charts after which the data was able to be ready for interpretation. Graphs and pie-charts were
47
developed by the use of computer packages such as Microsoft Word and Microsoft Excel.
However, qualitative data was analyzed by developing themes (headings) or sub themes, which
Tabulation: After collecting all the necessary data, these data were coded and edited, analyzed
and rephrased to eliminate errors and ensure consistency. It involves categorizing, discussing,
classifying and summarizing of the responses to each question based on the various responses.
This will be intended to ease the tabulation work. It will also help to remove unwanted responses
which would be considered insignificant. Finally, a research report will be written from the
48
The genders of the respondents are mostly female with a total number 42 against the male
gender with only 8 respondents. The position of the respondents were mostly the ones who
manage the day-to-day affairs of the organization with a total of 26 followed by others being the
owner and the one managing the organization with a total of 18. It can be concluded that most of
the respondents were the salesladies who are working when the survey has been conducted. The
number of the employees working in each enterprise starts from the range of 1 to 4, the
respondents who has a small scale of business clarified that they have suppliers for the footwear
product and some only have 2 to 3 workers whose responsible for the products being sold. Many
of the enterprises are established for more than 11 years ago and some are just emerging within
the age of 1 to 5 years. 43 out of 50 respondents answered that they have been using budgeting
but most of them are using the informal type of budgeting. The respondents also indicated that
they’ve been using budgeting since the start of the business itself and having the owner as the
one responsible for preparing the said budget which in fact, 72% of them has knowledge about
accounting or management.
49
The most identified reason for not preparing budget is the lack of knowledge regarding to
what budgeting really is and this is followed by the reason that budgeting is costly to prepare.
Questioning the respondents if they believe "Budgeting has an impact in financial performance
made the respondents think of the importance of preparing and application of budgeting, thus
leading to them being convinced to prepare such. Attending seminars garnered the highest
50
CHAPTER IV
I. Introduction
The study focused on the role budgeting in the internal control in relation to the financial
performance in Liliw, Laguna. The findings from the study were presented and analyzed
chronologically based on objectives of the study as were formulated in chapter one of this study.
This was done with the aid of computer packages like MS Word and MS Excel where by graphs
This chapter gives presentation, analysis and interpretation of the data to solve the
research problem. In the presentation of findings, tables, frequencies, percentages and pie-charts
were used to describe the findings. It is from these findings that the study helped the researchers
to draw conclusions and make recommendations that can be useful to businesses. This is an
footwear industry.
This study aims to expose a number of issues relating to the roles of budgeting in the
51
II. Biographical characteristics of the respondents
The gender distribution of respondents was established. The purpose of this is to know
how males and females as an owner/manager or as an employee who manages the day-to-day
affairs of the business, participate in enterprises and how they perceive budgeting. The study
targeted both males and females which gave a variety of findings that were not biased, making it
Female 42 84 84
Male 8 16 100
Total 50 100
The study found out that the majority of the respondents were female. The number of
females who participated in the study was represented by 42(84%) as compared to 8(16%) of the
respondents who were male. This is because the footwear businesses in Liliw is being managed
by females either as the owner or a saleslady that manages the day-to-day affairs of the business
by simply following the norm that females are more hospitable and business minded than men.
Since this is a line of business which is built with a strong sense of self-advertisement, it needs
more outgoing and amiable persons. The given gender of the respondents may imply that women
52
could still be dominating compared to men in managing the affairs of the footwear businesses
Male,16%
Female,84%
B. Position ofRespondent
The positions of the respondents gathered are tallied and illustrated in the figure 2 on the
next page:
53
Figure 2: Showing the distinction in the respondents’ positions
30
OwnerandManager
25
Ownerbutdonotactivelymanage
20 the day-to-day affairs of the
organization
15 Managetheday-to-dayaffairsofthe
organizationbutnottheowners
10
Others
5
0
Position of Respondent
Most of the respondents were those who manage the day-to-day affairs of the business
but are not the owner. This is maybe because the owners are more focused on managing the
internal affairs of the business; this includes planning on how to boost sales, meeting with the
suppliers or their own production team, etc. thus, leaving the responsibility of customer
C. BusinessSize
having budget as a tool of internal control in a business. The business size focuses on the number
of people engaged in the business itself and belongs to the work force of the enterprise.
54
Figure 3: Showing the variations of the respondents’ business size
4%
0
19%
1
19% 2
3
4
5
28% 6
24% 10
The result plays between the ranges of 1 to 4 employees in the operation of the business,
2 being the highest gathering a number of 13 out of the 50 respondents. This will conclude how
55
D. Years of Operation
service : Years
Frequency Valid Percent Cumulative Percent
1-5 18 36 36
6-10 11 22 58
11 or more 21 42 100
TOTAL 50 100
From the respondents interviewed, 42% had been operating from the range of 11 years or
more and this simply indicates that many are established and well coped up in this line of
business—footwear industry. This is quite a good experience for the respondents to be informed
E. Use ofBudgeting
In the pool of respondents, 43 out of 50 were using budgeting. The whole 43 respondents
have been using budgeting as an instrument of their internal control since the business started. A
56
Figure 4
Ever UsedBudgeting
No
14%
Yes
86%
Figure 5 shows the number of respondents who are using budgeting and the person
Figure 5
Owner
Manager
Others
57
The preparation of budget is left under the hands of the owner having a number of 36 out of 43
respondents. This result shows how complex and confidential the preparation of budget in an
organization is. It is not simply just handed over to the lower employees considering the size of
Figure 6: Person in-charge of Preparing the Budget has Knowledge in Accounting or Management
No
28%
Yes
72%
31 of the respondents having knowledge about accounting and management give them the edge
58
G. Reasons for not PreparingBudget
This portion is based on the respondents who answered that they are not using budgeting.
The most identified reason of not preparing budget is because of it being costly, time consuming,
and that the people behind the business do not have enough knowledge about budgeting, and
thinks that it is not necessary for their business. A summary of results is illustrated below:
Figure 7
6
Costly
5
Time Consuming
4 Lack ofknowledge
3 Notnecessaryformybusiness
Others
2
0
Reasons for not preparing budget (Answered no in Q.5)
With this result, it can be concluded that majority of the respondents opted not to use
budgeting due to lack of knowledge about the concepts and importance of budgeting.
This aspect was covered by the study in order to establish the roles for budgeting in an enterprise
59
“Budgeting has an Impact in Financial Performance of the Business”
The respondents are asked if they believe in the said quotation, the results are illustrated below:
Figure 8
35
30
25 Agree
20 Strongly Agree
15 Disagree
10 Strongly Disagree
5
0
Budgeting has an impact in Financial Performance of the
Business
In order to get information, all categories of people with different levels of education
were approached during the study process. This established the levels of awareness of the
Figure 9
AwarenessoftheConsequencesandAdvantagesof
Budgeting
No
2%
Yes
60 98%
J. Ways to Learn and ApplyBudgeting
Continuing the business and improving its efficiency through the use and application of
budgeting. There are suggested ways indicated by the researchers as options that the respondents
thought that would help them learn more and apply budgeting as an instrument of internal
Figure 10
25
Ask Professional Budget Analyst
20
ConsultFinancialManagerinOwn
Business
Search in theInternet
15
5 Others
0
Ways to Learn and Apply Budgeting
Attending seminars garnered the highest number of answer which leads to a conclusion wherein
61
CHAPTER V
Summary of Findings
Introduction
In this chapter, discussion, conclusions and recommendations are based on the findings
from chapter four. The discussion, conclusions and recommendations were done according to
The study established that there are number of reasons for budgeting in the footwear
businesses including; planning, evaluation of performance, for control purpose and continuous
comparison of actual results against budgets to form a basis of standards. Although there are
number of businesses that claimed they have been using budgets, there are some who lack formal
budget.
The researcher further probed from the respondents the kind budget they prepare. The
analysis of the findings depicts that 86% of the respondents claimed that they practice budgeting.
Based on interviews of the researchers with the respondents, there are businesses who have
mistaken budgeting with estimating. These businesses forecast sales and expenses using their
own judgement and does not record their estimates thus lacking of formal budget.
62
The contribution of budgeting on the financial performance of enterprises
Based on the findings, majority or 96% of the respondents said that budgeting contributes
said that budgeting does no contribution on the financial performance. The respondent who
disagreed claimed that the business’ financial performance depends on other factors like hard
work, quality of the produced products and type of business carried out but not budgeting.
footwear businesses, those who agreed with the statement added that budgeting helps footwear
enterprises to plan on how to spent and earn funds for their expansion which later leads to higher
output, better profits and the end results is the increased financial performance.
businesses, it has been found that there are some relationship, as supported by 96% of the
respondents. This implied that to a large extent, budgeting has led to improvement of financial
performance of the businesses. This was based on the fact that better resources management are
done through budgeting that later leads to better financial performance adding that good financial
performance depends on a detailed good budget. Since there are large population of footwear
businesses in Liliw, and the competition between businesses are large, there are a number of
benefits of drawing up a budget in Liliw, including being better able to: manage your money
63
objectives, improve decision-making, identify problems before they occur, plan for the future
enterprises, respondents stressed that, budgeting has been effective in promotion of good internal
control and financial performance. This can be seen in the way that through budgeting, costs are
managed and controlled. The business can realize when costs are high and make some
adjustments and set targets to meet their target costs and therefore contributes to the financial
64
CHAPTER VI
Roles of budgeting
The study concludes that there are number of reasons for budgeting in the footwear
comparison of actual results against budgets to form a basis of standards, and creation of
The study concludes that budgeting performs a significant role of budgeting on the
can effectively and efficiently do their operations activities for improved financial performance.
The researcher further concludes that, budgeting system plays an important role to
translate all the company's strategies into short-term and long-term plans and objectives. They
further demonstrated that, budget is one of the important tools which all managerial levels use to
plan, control firm's activities, and make the business achieve certain aim and appropriate
operation.
65
The contribution of budgeting on the financial performance of private firms
enterprises. This is commonly so, through that budgeting costs are managed and controlled, can
realize when costs are high and make some adjustments and that the firms can set targets top
meet through budgeting and that by doing this cost area are managed and controlled for
increased financialperformance.
It can be concluded that, budgeting and financial performance of footwear businesses are significantly
related. This is because if well drafted, budgeting controls the misuse of funds, allocation of other resources and
therefore financial development which later leads to better financial performances. Still that proper planning of
funds is one of the significant roles of budgeting and that budgeting help firms to make profits after they have
The researchers found out about the different advantages and disadvantages of making a budget
through in depth research and scanning through all the past scholarly works available. The list of the
Planning orientation. The process of creating a budget takes management away from its short-term,
day-to-day management of the business and forces it to think longer-term. This is the chief goal of
66
budgeting, even if management does not succeed in meeting its goals as outlined in the budget - at least
it is thinking about the company's competitive and financial position and how to improve it.
Profitability review. It is easy to lose sight of where a company is making most of its money, during the
scramble of day-to-day management. A properly structured budget points out what aspects of the
business produce money and which ones use it, which forces management to consider whether it should
Assumptions review. The budgeting process forces management to think about why the company is in
business, as well as its key assumptions about its business environment. A periodic re-evaluation of
these issues may result in altered assumptions, which may in turn alter the way in which management
Performance evaluations. You can work with employees to set up their goals for a budgeting period,
and possibly also tie bonuses or other incentives to how they perform. You can then create budget versus
actual reports to give employees feedback regarding how they are progressing toward their goals. This
approach is most common with financial goals, though operational goals (such as reducing the product
rework rate) can also be added to the budget for performance appraisal purposes. This system of
Funding planning. A properly structured budget should derive the amount of cash that will be spun off
or which will be needed to support operations. This information is used by the treasurer to plan for the
Cash allocation. There is only a limited amount of cash available to invest in fixed assets and working
capital, and the budgeting process forces management to decide which assets are most worth investing
in.
67
Bottleneck analysis. Nearly every company has a bottleneck somewhere, and the budgeting process can
be used to concentrate on what can be done to either expand the capacity of that bottleneck or to shift
Inaccuracy. A budget is based on a set of assumptions that are generally not too far distant from the
Rigid decision making. The budgeting process only focuses the attention of the management
team on strategy during the budget formulation period near the end of the fiscal year. For the rest of
Gaming the system. An experienced manager may attempt to introduce budgetary slack,
which involves deliberately reducing revenue estimates and increasing expense estimates, so that he
Blame for outcomes. If a department does not achieve its budgeted results, the department
man anger may blame any other departments that provide services to it for not having adequately
Expense allocations. The budget may prescribe that certain amounts of overhead costs be allocated
to various departments, and the managers of those departments may take issue with the allocation
methods used.
68
Only considers financial outcomes. The nature of the budget is numeric, so it tends to focus
management attention on the quantitative aspects of a business; this usually means an intent focus
on improving or maintaining profitability. In reality, customers do not care about the profits of
a business – they will only buy from the company as long as they are receiving good service
and well-constructed products at a fair price. Unfortunately, it is quite difficult to build these
concepts into a budget, since they are qualitative in nature. Thus, the budgeting concept does not
69
CHAPTER VII
Recommendation
Based on the study findings as well as study conclusions, the researcher recommends the
following;
The footwear enterprises should hire employee workers who are qualified for the
selection and recruitment process that will help in the selection of people with skills and
particular, to always perform budgeting process. By doing this, all the owners or
managers in footwear enterprises will get to know of what is expected out of them and
to be able to adjust towards achieving it for fulfilling the firms’ goals and objectives
The owners and managers should be vigilant to the changing of trends in order to apply
budgeting and to have a much better forecast. Application of proper budgeting strategy
as a tool of internal control would give better results and would eventually lead to the
70
The footwear businesses should make every move possible and grab opportunities to
grasp more knowledge in internal control, budgeting in particular. Being able to collect
new information would lead to a better inner management when it comes to funds and
raisingprofits.
The study further recommends that human resource in footwear enterprises to always
conceive and adhere to budgeting in a positive way as it is drafted and follow its
contents in the day to day running of the firms’ activities because it contributes much to
the financial performance of firms. By doing this negative attitude of the human
resource in such enterprise will be reduced that will result into proper allocation
ofresources.
The researchers recommend the Flexible Budget as the type of budget advisable for the
usage of the footwear businesses not only in Liliw but also for the other localities in the
variable cost environment where costs are closely aligned with the level of business
activity, its performance measurement for it is a good tool for evaluating the
71
CHAPTER VIII
References
https://www.etravelweek.com/imported/budgeting-and-internal-controls-accounting-information-
planning
https://www.icaew.com/archive/library/subject-gateways/financial-management/cost-
management/small-business-update/how-a-well-planned-budget-can-help-your-business-flourish
https://www.yahoo.com/news/blogs/profit-minded/seven-reasons-why-small-business-set-
budget-190602154.html
https://www.businessnewsdaily.com/8323-small-business-budget.html
https://files.eric.ed.gov/fulltext/EJ1114871.pdf
https://smallbusiness.chron.com/budget-internal-controls-manage-cash-before-going-business-
14343.html
https://uniprojects.net/project-materials/budgeting-as-an-instrument-of-internal-control-in-a-
manufacturing-organization/
E.A. Lowe,I.Shahin,(1980)"InternalAuditoftheBudgetingFunctionandthePropensity
159, https://doi.org/10.1108/eb013443
72
Edward Mendlowitz CPA
Book Editor(s):
William R. Lalli
home.
Hope, J & Fraser, R. (2003) Beyond Budgeting – how managers can break free .Journal of
Hall.
Anthony, Robert N. 1965. Planning and control systems: a framework for analysis. Boston:
Harvard Business School.
Jensen, Michael C. 2001. “Corporate Budgeting Is Broken - Let's Fix It”. Harvard Business
Review, vol. 79
Better Budgeting: A report on the Better Budgeting forum. London : The Chartered Institute of
Management Accountants and the ICAEW Faculty of Finance and Management, 2004, 14 pp.
73
CHAPTER IX
Appendix
(SAMPLE QUESTIONNAIRE)
Name ofBusiness:
Name of Owner(Optional):
1. Gender ofrespondent
Male
Female
Other (pleasespecify):
3. Business size. Please indicate the number of full-time and part-time employees, including
1-5years
6-10years
11 years ormore
YES
NO
74
6. If your answer is YES in number 5, how long have you been usingbudgeting?
Specify
7. If your answer is YES in number 5, who is the one responsible in preparing thebudget?
Owner
Manager
Others,specify
management?
YES
NO
Costly
Timeconsuming
Lack ofknowledge
Others,specify
Agree
Stronglyagree
Disagree
Stronglydisagree
75
11. Are you aware of the consequences and advantages ofbudgeting?
YES
NO
12. If you are convinced to implement the use of budgeting in your business, in what ways
Search in theinternet
Attendseminars
Others (pleasespecify):
76
The steps in preparing budget
1. Update budget assumptions. Review the assumptions about the company's business
environment that were used as the basis for the last budget, and update asnecessary.
2. Review bottlenecks. Determine the capacity level of the primary bottleneckthat is
constraining the company from generating further sales, and define how this will impactany
additional company revenuegrowth.
3. Available funding. Determine the most likely amount of funding that will be availableduring
the budget period, which may limit growthplans.
4. Step costing points. Determine whether any step costswill be incurred during the likelyrange
of business activity in the upcoming budget period, and define the amount of these costs and
at what activity levels they will beincurred.
5. Create budget package. Copy forward the basic budgeting instructions from the instruction
packet used in the preceding year. Update it by including the year-to-date actual expenses
incurred in the current year, and also annualizethis information for the full current year.Add
a commentary to the packet, stating step costing information, bottlenecks, and expected
funding limitations for the upcoming budgetyear.
6. Issue budget package. Issue the budget package personally, where possible, and answer any
questions from recipients. Also state the due date for the first draft of the budgetpackage.
7. Obtain revenue forecast. Obtain the revenue forecastfrom the sales manager, validate itwith
the CEO, and then distribute it to the other department managers. They use the revenue
information as the basis for developing their ownbudgets.
8. Obtain department budgets. Obtain the budgets from all departments, check for errors,and
compare to the bottleneck, funding, and step costing constraints. Adjust the budgets as
necessary.
9. Obtain capital budget requests. Validate all capital budgetrequests and forward them tothe
senior management team with comments and recommendations.
10. Update the budget model. Input all budget information into the master budgetmodel.
11. Review the budget. Meet with the senior management team to review the budget. Highlight
possible constraintissues, and any limitations caused by funding problems. Note all
comments made by the management team, and forward this information back to thebudget
originators, with requests to modify theirbudgets.
12. Process budget iterations. Track outstanding budget change requests, and update thebudget
model with new iterations as theyarrive.
13. Issue the budget. Create a bound version of the budget and distribute it to allauthorized
recipients.
14. Load the budget. Load the budget information into the financial software, so that you
can generate budget versus actualreports.
77
Budgeted Production
Budgeted Sales xx
Total xx
Budgeted production xx
Total xx
Budgeted Sales xx
Total xx
78
Cash Budget
Add receipts xx
Less disbursement xx
Financing xx
79