VCE Accounting Unit 4

1. 21.10
BUDGETING FOR
PREPAID EXPENSES
AND COST OF SALES

2. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 The firm is preparing budgets for
April 2015. How will this item be
reported in the…
 Budgeting for prepaid expenses…
 On 31 March 2015, a firm’s Balance
Sheet showed the following:
 The prepaid insurance of $900 is the
result of a yearly premium paid on 1
January 2015.
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES
Balance Sheet as at 31 March 2015
Current Assets $
Prepaid insurance 900
Budgeted Cash Flow
Statement
Budgeted Income Statement
Budgeted Balance Sheet
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
31 Mar
$900
1 Jan
Paid
1 2 3 4 5 6 7 8 9 10 11 12
There are 9 months left of the insurance policy
$900 remaining on the insurance policy
1 2 3 4 5 6 7 8 9100 100 100 100 100 100 100 100 100
$0
$100
$800
100 100 100 100 100 100 100 100 100

3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for Cost of Sales…
 A business budgets for cost of sales of $50,000. A fixed mark-up of 50%
is applied to all sales.
What are the budgeted Sales?
$75,000 $25,000
$50,000 $100,000
Example 1
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES

4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for Cost of Sales…
 A business budgets for cost of sales of $50,000. A fixed mark-up of 50%
is applied to all sales.
x 1 + Mark-up %
Cost of Sales
= Sales
x 1 + 0.5
$50,000
= Sales
x 1.5
$50,000
= $75,000
Example 1
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES

5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for Cost of Sales…
 A business budgets for cost of sales of $100,000. A fixed mark-up of
150% is applied to all sales.
What are the budgeted Sales?
$200,000 $150,000
$100,000 $250,000
Example 2
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES

6. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for Cost of Sales…
 A business budgets for cost of sales of $100,000. A fixed mark-up of
150% is applied to all sales.
x 1 + Mark-up %
Cost of Sales
= Sales
x 1 + 1.5
$100,000
= Sales
x 2.5
$100,000
= $250,000
Example 2
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES

7. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for Cost of Sales…
 A business budgets for sales of $150,000. The firm applies a mark-up of
50% to all stock.
What is the budgeted Cost of Sales?
$75,000 $120,000
$100,000 $50,000
Example 3
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES

8. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for Cost of Sales…
 A business budgets for sales of $150,000. The firm applies a mark-up of
50% to all stock.
Cost of
Sales =
1 + Mark-up %
Sales
=
1 + 0.5
$150,000
=
1.5
$150,000
= $100,000
Example 3
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES

9. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for Cost of Sales…
 A business budgets for sales of $150,000. The firm applies a mark-up of
200% to all stock.
What is the budgeted Cost of Sales?
$75,000 $100,000
$30,000 $50,000
Example 4
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES

10. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for Cost of Sales…
 A business budgets for sales of $150,000. The firm applies a mark-up of
200% to all stock.
Cost of
Sales =
1 + Mark-up %
Sales
=
1 + 2.0
$150,000
=
3.0
$150,000
= $50,000
Example 4
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES

11. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for Cost of Sales…
 A business budgets for sales of $150,000. A fixed mark-up is maintained
on goods to ensure a Gross Profit that is equal to 40% of sales.
What is the budgeted Cost of Sales?
$60,000 $90,000
$120,000 $75,000
Example 5
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES

12. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for Cost of Sales…
 A business budgets for sales of $150,000. A fixed mark-up is maintained
on goods to ensure a Gross Profit that is equal to 40% of sales.
- Cost of Sales
Sales
= Gross Profit
- 60%
100%
= 40%
- $90,000
$150,000
= $60,000
Example 5
21.10 BUDGETING FOR PREPAID
EXPENSES AND COST OF SALES

13. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
Ex21.12 X
Ex21.13 X