BUDGETING Budget and Forcasting You will compare your future – going to work right after high school or entering the workforce after college. What do you

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<ul><li> Slide 1 </li> <li> BUDGETING 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? </li> <li> Slide 2 </li> <li> BUDGETING Review Handout Terms Financial Planning Budgeting 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. Revenue Money that is earned and received, or will be received at a future date. Expenses Costs 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 Income When revenues exceed expenses net income is the label used because it is income net of expenses. Loss or Debt Expenses 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 years net income or loss, the resulting figure is the retained earnings. </li> <li> Slide 3 </li> <li> 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. BUDGETING Projecting Increases in Expenses and revenue </li> <li> Slide 4 </li> <li> BUDGETING Years 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. </li> <li> Slide 5 </li> <li> BUDGETING CUMULATIVE ANSWERS Jack 12345678910 Total Expenses 17,90018,42418,96919, 53615,32515,93816,57617,23917,92818,645 Savings/ Debt 3,5003,6183,7343,8498,7618,8708,9779,0819,1819,277 Cumulative Savings/ Debt 3,5007,11810,85214,70123,46232,33241,30950,39059,57068,847 Diane 12345678910 Total Expenses 24,35024,83225,32425, 82522,70023,35824,04224,75419,24420,014 Savings/ Debt (9,150)(10,632)(11,124)(11,625)12,30015,14218,30821,83131,99936,354 Cumulative Savings/ Debt (9,150)(19,782)(30,906)(42,532)(30,231)(15,089)3,21925,05057,05993,403 </li> <li> Slide 6 </li> <li> BUSINESS PLAN Management Team Review Final answers What 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? </li> </ul>