The sales budget is just one small portion of a company’s master budget. In some cases, it is the first part of the master budget, as companies need the information in order to create the remaining budget parts. Analyzing the budget is necessary because many companies have two types of sales: cash and credit. Cash sales result in an immediate receipt of capital, while credit sales may take 30 days or longer to collect. Keeping these sales types separate helps create a more accurate sales budget.
Review the previous 12 months of sales revenue as listed on the company’s income statements.
Identify what portion of the sales were cash sales and which were credit sales. Compare these percentages to the sales budget for each month.
Determine which amount of credit sales went uncollected from each of the previous accounting periods. Review the bad debts expense reported each month to discover this amount.
Divide total operating expenses by total sales revenue from the sales budget. This determines what portion of the budget went to pay for normal expenses.
Compare the percent of sales revenue from the sales budget to the percent of expenses from sales revenue on the income statement. This determines the accuracy of the company’s budget process.