Accounting Business Reporting for Decision Making

CHAPTER 9 Budgeting 389

undertaken to understand the cause. Such investigations will provide the necessary feedback to inform

future actions, and may require a revision of the budget.

An illustration of the main components of a master budget is provided in figure 9.2. As outlined in

table 9.1, the individual components that make up a master budget are specific to the entity. In the next

section we illustrate the preparation of the various budgets that make up the master budget for both a

service entity and a manufacturing entity.

Capital

expenditure

budget

Budget assumptions

Sales or fees

budget

Operating expenses

budget

Budgeted

financial statements

Cash budget

Financial budgets

Operating budgets

FIGURE 9.2 Master budget illustration

Preparation of an operating budget for a service entity

Nicholas Cash is the owner of Advantage Tennis Coaching (ATC), a Brisbane tennis coaching clinic.

The business leases a number of courts at the Brisbane Tennis Centre in Tennyson, Queensland. During

its first 4 months of operations, the business has built up a steady flow of customers largely consisting of

juniors, elite juniors and mature aged fitness players. Before the start of the next year Nicholas sat down

with his accountant to prepare a budget for the expected operations for the next 12 months. Following is

an overview of their budget preparation for the period January to December 2017.

The starting point is to estimate the expected activity level for 2017. This will require market analysis to

identify customer demand and then will lead to the preparation of the sales budget detailing the estimated

revenue that will be generated based on forecast demand. The sales budget is often referred to as the ‘cor-

nerstone’ of the budget process as it informs the preparation of all other sub-budgets and determines the

operating level and therefore the required resources and infrastructure to support planned activities. Based

on market analysis undertaken by a local agency and Nicholas’ knowledge of the sector it is expected that

patronage should rise in 2017. In 2016, the number of juniors in coaching squads averaged 300 players

for 26 weeks of the year. Junior coaching fees were set at $25 per week. Nicholas plans to promote his

coaching services and grow this customer group by 20 per cent while holding coaching fees at the same

amount as in 2016. Nicholas had 20 junior elite players in 2016. He has attracted an additional 5 players