What you will learn to do: prepare a financial budget for a manufacturing firm
The classic financial budget includes projected cash flows, a balance sheet, and an income statement, all based on the operating budget. The evaluation of incomes and expenses is done on a monthly, quarterly, half-yearly, or annual basis, depending on the needs of the organization. Most often, budgeting is done on a monthly basis, if possible, in order to give management current information for decision making. A financial budget is a very powerful tool to achieve the long-term goals of any business. Importantly, it also keeps the shareholders and other members of the organization updated about the functioning of the business.
Here is an overview of the three main financial statements that businesses use to report to outside investors. In budgeting, the financial statements are pro forma, which means they are prepared “as if” the budget reflected actual results.
You can view the transcript for “Three Key Financial Statements” here (opens in new window).
For budgeting purposes, instead of a statement of cash flows, which is usually prepared last for financial reporting purposes, we’ll start with a projected cash budget.
When you are done with this section, you will be able to:
- Prepare a cash budget
- Prepare a budgeted income statement
- Prepare a budgeted balance sheet
Learning Activities
The learning activities for this section include the following:
- Reading: Cash Budget
- Self Check: Cash Budget
- Reading: Budgeted Income Statement
- Self Check: Budgeted Income Statement
- Reading: Budgeted Balance Sheet
- Self Check: Budgeted Balance Sheet