Page 168 - Budgeting for Managers

Tracking Your Budget
Income All the money that comes into the company.
Unless there are unusual sources of income (such as inter-
est payments to the company), income is the result of sales.
Gross sales Total receipts from customers.
Cost of goods sold (COGS) The direct cost of purchased parts 151
and materials included in items that are sold. COGS is most important
in manufacturing and is linked to the change in the value of inventory.
Net sales Gross sales less COGS.
Depreciation An adjustment to the book value of assets owned by
the company (such as equipment) that approximates the reduction in
value of the asset due to aging.
Earnings before taxes Net sales less total expenses and deprecia-
tion.
Net income Earnings after taxes—the amount of money the compa-
ny made in the period, increasing its equity.

Manager’s Checklist for Chapter 9

❏ Do you have proper controls in place to ensure that all
purchases are approved before they’re made? Are the con-
trols too tight, making it difficult for people to get what
they need and get work done?
❏ Do you track transactions in a timely fashion? Or do you
find that closing the month takes a lot of digging and too
much guesswork?
❏ Do you keep your records up to date so that you can cor-
rect errors promptly and take care of work such as collect-
ing overdue accounts receivable?
❏ Prepare an estimated vs. actual spreadsheet for one month
for your department or have the accounting department do
it for you. Then explain each variance and decide whether
it’s significant or not. For each significant variance, what
action would you take to rectify it?
❏ Make sure you know the procedures for adjusting the
budget at your company.