Preparation of a Master Budget Using Microsoft Excel Software

In every business plan, the preparation of the budget is the most important function to perform.

The planning of different organisations depends upon so many factors because of the various types of goods produced and/or services rendered.

Planning is done for the purpose of comparing the actual performance with standard performance in order to correct any deviation that may arise at the end of productivity.

The system of providing well-processed information to the management for fast and auspicious decision-making, known as the Management Information System, which the organisation in question has been utilising consistently needs more concentration and development so as to create or ensure efficiency and effectiveness within an organisation.

In this day and age, the introduction of information and communications technology through the invention of computers has brought about inestimable growth and development to the business enterprises and the whole nation in general.

Therefore, developing and utilising an Excel-based budget allows business owners, managers, and supervisors to see how changes, regardless of how small or large, impact the company’s bottom line.

Endurance and taking time now to create a master budget using a spreadsheet program called Microsoft Excel Software will save time in the future because once it is prepared, the budget can roll forward each period with few updates needed.

In preparing any type of budget using MS-Excel software, the first thing to do by the users is to create a data input sheet, which is the most important part of the budget, as it is where the supporting budgets and the master budget will pull most of the data.

This sheet that consists of all basic information will need to be updated each period since all the data on this sheet will be typed in (not pulled or linked).

After the creation of the data input sheet, supporting budgets (i.e., necessary budgets that need to be prepared before the preparation of the master budget, such as sales, production/purchases, direct labour costs, selling and distribution budgets, etc.) will be created on other sheets within the same Excel file.

Master Budget and Its Major Components

A master budget is an overall financial and operating plan for a forthcoming calendar or fiscal year.

It is usually prepared annually or quarterly.

It is really a number of sub-budgets tied together to summarise the planned activities of the business.

Also, it incorporates all previously mentioned budgets but mainly comprises of budgeted cashflow statement (cash budget), budgeted income statement (profit and loss account), and budgeted balance sheet.

(a) BUDGETED CASHFLOW STATEMENT/CASH BUDGET

This type of budget is for cash planning and control. It presents expected cash inflow and outflow for a designated time period.

It helps the management keep cash balances in reasonable relationship to its needs and aids in avoiding idle cash and possible cash shortages.

(b) BUDGETED INCOME STATEMENT

This is the type of budget that follows the format of trading, profit and loss account in its preparation.

It is useful for either internal or external purposes to disclose the gross profit and net profit before tax.

(c) BUDGETED BALANCE SHEET

This is also prepared in the same format as a balance sheet.

The preparation of a budgeted balance sheet could be in a format meant for either internal or external use, depending on available information.

It gives a summary of the total assets and liabilities of the organisation.

Conclusion

Since only an update is needed after one master budget has been prepared, it will increase efficiency and make the process of preparing the annual master budget faster and easier.

Under the preparation of master budgets or any other types of budgets using MS-Excel software, all calculations are performed by the use of Excel formulas that have been programmed with the software for easy computation on the rows and columns of the cells. The possibilities are endless!

An additional benefit of the Excel-based budget is that one can easily change any variable and see how it affects the bottom line within nanoseconds.

Also, it is very easy to compare each period to the prior periods by simply copying and pasting information from one master budget to another.

Finally, it should be noteworthy that only supporting schedules and data input sheets need to be updated, not the master budget once it is developed, and also enable the users to illustrate and analyse data more effectively and efficiently.

Through this, better decisions will be made on this information by the management, which will save both time and money.

References

> Ajayi M.A. (2009): Advanced Cost Accounting

> Omotilewa O.O. (2004): Fundamentals of Management Information System (Issues and Concepts)

> Drury C. (2004): Management and Cost Accounting, 6th Edition

> Femi Longe O. (2002): Simplified Bookkeeping Accounting

> British Standard Institute (1999): Information and Communication Management

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