Project 4

Project 4: Budgeting

 

Training Room Summary

 

At the end of the accounting cycle, financial statements are prepared that summarize the ending account balances as well as the company’s net income or net loss at the end of a fiscal period. Companies examine these statements to prepare plans to increase net income and company growth.

 

Budgets are prepared reflecting past and present financial information as plans for the future. The type of budget a company prepares is dependent on the type of business and the projected plans.

 

In this training room you have prepared a budgeted income statement. The current or end of the fiscal period income statement is used to prepare this budget. Keeping in mind trends in sales and expenses over past fiscal periods, companies are able to anticipate a percentage increase or decrease in future fiscal periods. The budgeted income statement shows the anticipated revenue, expenses, and net income for a fiscal period. Knowing this information will assist a business in determining a plan to increase its net income.

 

You also prepared a cash budget in this training room. This budget consists of the anticipated cash received and paid during the next fiscal period. Companies look at the cash with which they are beginning the period and add the cash they anticipate to receive in the future, as well as the cash they expect to receive from money owed from the last fiscal period. They then project the anticipated cash that will be paid for any outstanding expenses as well as for expenses during the future fiscal period.

 

The projected amounts of cash received and cash paid are percentages based on the company's history. This budget helps a company maintain an adequate cash flow. Companies need to have cash flow to pay expenses such as bank loans, salaries, and utilities. It is also wise for a company to maintain a cash flow to take advantage of cash discounts and any opportunities that may arise.

 

A budgeted income statement and a cash budget are the two most common types of budgets. However, various forms of these budgets as well as supporting documents can be prepared depending on the company. The more fiscal periods a company has had, the more accurate these projections will be. The more accurate these projections are, the more informed a company is when making assessments and plans to improve.

 

Continue on to Training Room 3 to explore how a business uses these budgets to complete a budget analysis.

 

 

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