Dumaguete City National High School

Dumaguete City Division

BUSINESS FINANCE
Prepared by: Miss Clareen June E. Dagoy

SECOND SEMESTER
Quarter 1 – Week 3-4
Content Standard:

The learners demonstrate an understanding of the financial planning process, including budget preparation, cash
management, and working capital management.

Performance Standard:

The learners are able to:

a. illustrate the financial planning process,
b. prepare budgets such as projected collection, sales budget, production budget, income projected statement
of comprehensive income, projected of financial position, and projected cash flow statement, and
c. describe concepts and tools in working capital management.

Most Essential Learning Competencies (MELCs):

The learner identifies the steps in the financial planning process, illustrates the formula and format for the
preparation of budgets and projected financial statement and explains tools in managing cash, receivables, and
inventory.

This module is divided into two lessons,

namely:

Lesson 1– Steps in the Financial Planning

Process; and
Lesson 2– Formula and Format: Budgets and
Projected Financial Statements Preparation.

After going through this module, you are

expected to:

Lesson 1:
1. Define financial planning;
2. Identify the steps in the financial planning
process; and
3. Explain the importance of identifying the
steps in financial planning.
Lesson 2:
1. Identify the steps in budget and projected
financial statements preparation;
2. Prepare different types of budget and different types of projected financial statements; and
3. Cite real-life situations showing the application of budgeting, and projected financial statement preparation

Lesson 1

What’s In !
In the previous lesson, you have learned what is finance and financial management,
the flow of funds within an organization – through and from the enterprise – and financial markets, as well as the
role of the financial manager in the financial institution. In this modules, financial planning, budget preparations,
and projected financial statements preparation will take place.
 What’s New !
Activity 1: Picture Perfect
Directions: Follow the instructions below and answer in a separate sheet of paper.
1. 1. Analyze the pictures below.

2. What do the pictures show?

3. From the given pictures, make a definition of financial planning.

What is It !
Financial planning - It is the process of formulating financial policies, procedures, and budget
forecasting in managing financial plans.

2 Phases of Financial Planning

a. Long-term plan or strategic plan - set of goals that design the overall direction of the company. It is an integrated strategy for
strategic goals.
b. Short-term plan or tactical plan - a process of setting specific strategies in a closer time frame that will ultimately reach
overall goals.

The Importance of Financial Planning

 To ensure adequate funds.
 Help in making growth and expansion program which will aid the long-run survival of the company.
 Assures the suppliers of funds that their investments are well managed.
 Maintain a secure balance between outflow and inflow of funds for stability.

Steps in the Financial Planning Process

1. Setting goals or objectives. Goal setting is a process that starts with careful consideration of what you want to achieve and ends
with a lot of hard work to accomplish it. In setting goals, you have to identify the long-term and short-term plans in order to achieve
your mission and vision.

2. Identify resources. Resources include production capacity, human resources who will man the operations, and financial resources
(Borja & Cayanan, 2015).

3. Identify goal-related tasks – In this step, management should focus on completing a task in order to achieve planned objectives.
Task-driven or results-driven uses targets to stay motivated in their work.

4. Establish responsibility centers for accountability and timeline. If the task is already identified, the next step is to identify which
department should be held accountable. For example, if your goal is to achieve a 30% increase in sales, this should be the
responsibility of the head of the sales and marketing department and there should also be other departments who should take
responsibility for achieving the goal.
*There must also be a timeline for the planned activities, especially activities which are not normally done.

5. Establish the evaluation system for monitoring and controlling. In financial planning, the management must establish a
monitoring and controlling evaluation system so that there is a clear plan for the program or activity. It will help the staffs decide how
they are going to track and analyze data. Quantified plans on budget and projected financial statements should also be done.

6. Determine the contingency plan. A contingency plan is often referred to as Plan B because it can be used as an assumption for an
unexpected result. Determining a contingency plan helps an organization respond effectively to a future event or situation that may or
may not occur.

What’s More !
Activity 2: Flow Sheet
Directions: Fill-out the given flowchart showing the correct process of financial planning and write a brief explanation on the
importance of financial planning.
Financial Planning Process

Explanation:

Step 1:

Step 6: Step 2:

Step 5:
Step 3:

Step 4:

What I Can Do !
Activity 3: Eventurous!
Directions: Suppose you are planning an event (birthday, wedding, debut, etc.), prepare a step-by-step activity following the financial
planning process.

Event Tittle:
Date and Time:
Step-by-Step Activity:
1

Rubrics in Rating Activity 5: Eventurous!

Lesson 2
 In the previous lesson, we have discussed financial planning, steps in preparing a financial plan, and its
What’s In ! importance. For this lesson, you will focus on the preparations of budgets and projected financial statements
such as projected collection, sales budget, production budget, income projected statement of comprehensive
income, projected of financial position, and projected cash flow statement.

What is It !
Budgeting and Forecasting Financial Statement

Budget is an amount of money available for spending based on a plan and for how it will be spent. It serves as a tool for planning and
controlling.

Types of Budget

a. Sales Budget is the most important financial statement account in forecasting. It is a financial plan that shows how the
resources should be allocated to achieve forecasted sales. It contains an itemization of a company’s sales expectations for the
budget period.

Example:
Sales budget of ABC Company
For the year ended December 31, 2019
Series no. Particulars Quarter 1 Quarter 2
1 Sales unit (Forecasted) 6,000 5,000
2 X Price per unit 100 150
Sales Revenue Php 600,000 Php 750,000

b. Production Budget- provides information regarding the number of units that should be produced over a given accounting
period based on expected sales and targeted level of ending inventories. It is computed as follows:

Example: KGE Company plans to

produce plastic bottle for the year, the production needs as follows:
KOE Company
Production Budget
For the year ended December 30, 2020
Quarter I Quarter 2 Quarter 3 Quarter 4
Forecasted Unit Sales 4500 5000 6000 7000

+ Planned Ending 500 500 500 500

c. Inventory Units
= Total Production 5000 5500 6500 7500
Required

1000 1000 1000 1000

-Beginning F/G Inventory
= Units to be manufactured 4000 4500 5500 6500
Projected Collection refers to the calculation of expected cash collections based on the total sales figure obtained from the sales
budget. The management estimates the proportion in which sales are expected to be collected in the current and following
periods. This is used to determine how much sales are expected to be collected during a period.
The following are the Steps in Formulating Budget
1. Obtaining Estimates
2. Coordinating Estimates
3. Communicating Budget
4. Implementing the Budget Plan
5. Reporting Interim Progress towards Budgeted Objectives

Projected Financial Statement is a tool of the company to set an overall goal of what the company’s performance and position will
be for and as of the end of the year. It sets targets to control and monitor the activities of the company. Forecast or calculate the
following reports:

A. Projected Income Statement - is an estimate of the financial results you’ll see from your business in a future period of time. It
is often presented in the form of an income statement.

Example:
 B. Projected Statement of Financial Position - refers to the informed projection of its business’s assets, liabilities, and capital. It
allows businesses to see what they’re likely to own and owe at a future date, which can help them plan for future purchases
and other important business decisions. Businesses examine past financial statements and use that historical data to make
projections about their future capital assets, debt, and equity.

Example:

Steps in Projecting Statement of Financial

Position:
1. Format your Financial Position
2. Enter Starting Balances
3. How Sales Impact the Balance Sheet
4. How Expenses Impact the Balance
Sheet
5. How does a New Loan Impact the
Balance Sheet

C. Projected Cash Flow Statements

refer to estimate the amount of
cash flowing into and out of your company for a specific future period. A pro forma cash flow statement can help you
identify where your business may
experience cash shortfalls in the
future, so you can plan accordingly
to offset lean times.
Example:

Cash Sales

Received by Accounts Receivable

Subtotal from Operations

New Current notes

New current other

New long-term liabilities

Sales of other current assets

Sales of Long-term assets

New Investment

Subtotal Money Received

Cash Spending
Payment of Accounts Payable

Subtotal from Operations

Principal Repayment

Current notes
Current other
Long-term liabilities

Purchase Current Assets

Purchase Long-Term Assets

Dividends

Subtotal Money Spent

Cash Flow
Cash Balance

The financial statement method will be used in projecting financial statement. The following are the steps in making financial
projections:
a. Forecast sales. In making financial projections, always begin with the statement of profit or loss and the most vital account
to forecast is sales.
 b. Forecast cost of sales and operating expenses. For the cost of sales, the average cost of sales over the historical data
analyzed can be used.
c. Forecast net income and retained earnings. To forecast net income, there should be information on income taxes and how
much financing cost a company will have. Financing costs will be based on the amount of loan that a company has.
d. Determine balance sheet items that will vary with sales or whose balances will be correlated with sales. Sales, cash,
accounts receivable, inventories, accounts payable, and accrued expenses payable are the balance sheet items that may vary
with sales.
e. Determine the payment schedule for loans. The payment schedule for loans can be based on the disclosures provided in the
notes of the financial statement.
f. Determine the external funds needed. The Balance Sheet has to be balanced. After assumptions are made the projected
statement of financial position has to be balanced.

The formula for EFN is: EFN = Change in Total Assets – (Change in Total Liabilities + Total Change in Stockholders’ Equity)
• If the EFN is on the liabilities and stockholders’ equity section and the amount is positive, there will be additional financing.
However, if the amount is negative there will be excess cash.

g. Determine how external funds will be financed. Once EFN, is computed, the management decides how to finance it either
debt or equity, or a combination of debt and equity

What’s More !

Activity 4: Budget-ing
Directions: Read and analyze the given scenario. Write your answer on a separate sheet of paper.

Mielle’s Company has forecasted sales for its product to be 10,000 units for September, 12,000 units for October, 13,000 units for
November, and 14,000 units for December. The budgeted selling price is Php 45.00 per unit and increases to Php 50.00 per unit in
November. The company expects to continue sales discounts of three percent for the year. The desired ending inventory is 3,000 units,
and the expected beginning inventory in September 1 is 4,000 units.

Prepare the following:

A. Sales Budget
B. Projected Collection
C. Production Budget

ASSESSMENT:
Directions: Choose the letter of the best answer. Write the chosen letter on a separate sheet of paper.

1. Which of the following refers to the process of formulating financial policies, procedures, and budget forecasting in managing
financial plans?
a. Financial Planning c. Short-term Planning
b. Long-term Planning d. Forecasting

2. Alona wanted to put-up hardware in their barangay. She conducted a survey in order to assess the capability and the capacity of her
neighborhood. This action describes what phases of planning?
a. Short-term plan c. Long-term plan
b. Medium plan d. 1st phase plan

3. The following are the importance of planning, EXCEPT _________________.

a. to ensure adequate funds
b. help in making growth and expansion
c. guarantee that the buyer of funds is investing in companies
d. maintain a secure balance between outflow and inflow of funds

4. One of the steps in the financial planning process is setting goals or objectives. Which of the following describes goal setting?
a. It begins with careful considerations and ends with a lot of hard work.
b. It is a process of monitoring and evaluation in order to have a clear plan.
c. It is a process of identifying what plan is done.
d. Establishes an evaluation system for monitoring and controlling.

5. It is the most important financial statement account in forecasting.

a. Production budget c. Cash budget
b. Operating budget d. Sales budget

6. Which of the following provides information regarding the number of units that should be produced over a given accounting
period?
a. Sales budget c. Operating budget
b. Production budget d. Cash Budget

7. Making financial projections always begin with a statement of profit or loss. This explains what steps of financial statement
projection?
a. Forecast net income and retained earnings
b. Determine payment of loans
c. Forecast sales
d. Forecast cost of sales and operating expenses

8. The formula for external funds needed (EFN) is: _________________________.

a. EFN = Change in Total Assets- (Change in Total Liabilities + Total Change in Stockholders’ Equity
b. EFN = Change in Total Assets + (Change in Total Liabilities - Total Change in Stockholders’ Equity)
c. EFN = Change in Total Liabilities + Change in Total Assets- Change in Stockholders’ Equity
d. EFN = Change in Stockholders Equity + Change in Total Assets –Total Change in Liabilities

9. Which of the following is an example of identifying other receipts?

a. Payable interest
b. Return on interest
c. Proceeds from the sale of non-operating assets
d. Issuance of capital gains

10. A contingency plan is often referred to as plan B because __________________

a. it can be used as an assumption for an unexpected result.
b. it can be used as an immediate plan.
c. it can be used for the preparation of expected results.
d. it can be used for a strategic plan.

11. Which of the following is TRUE about the Production Budget?

a. Ending inventory of the current period is the beginning inventory of the next period.
b. Ending inventory of the previous period is the beginning inventory of the next period.
c. The beginning inventory of the current period is the ending inventory of the next period.
d. The beginning inventory of the previous period is the ending inventory of the current period.

12.The following are the steps in projecting financial statements, EXCEPT for _____________________________.
a. forecast sales
b. forecast cost of sales and operating expenses
c. determine balance sheet items
d. forecast account receivables

13. It is the collection of money from a customer which increases the cash balance. a. Cash Disbursement c. a. Cash Disbursement
c. Cash Flow
b. Cash Receipts d. Cash balance

14. You opt for a stable, financial stability and security for your business. You made plans and set goals in the future. This is an
example of __________________.
a. strategic plan c. visualize plan
b. tactical plan d. setting plan

15. Because of the pandemic Covid-19 you make arrangements with your business arrangements. You make plans that couldn’t
hamper your business operations. This is an example of _________________.
a. strategic plan c. visualize plan
b. tactical plan d. setting plan

References
Arthur S. Cayanan and Daniel Vincent H. Borja, 2017 Business Finance First Edition, Manila Philippines
Ma. Elenita Balatbat Cabrera and Gilbert Anthony B. Cabrera, Business Finance Principle and Apllication 2017 Edition, Manila
Philippines
Vibal group Inc. and Florenz C. Tugas, Aeson Luiz C. Dela Cruz, Alloysius Joshua S. Paril, and Alger C. Tang. Business Finance,
Araneta Avenue, Quezon City
The Commission on Higher Education in collaboration with the Philippine Normal University: Teaching guide for Senior High
School,

Internet ink:
https://investinganswers.com/dictionary/w/working-capital
https://www.proprofs.com/quiz-school/story.php?title=financial-planning-process