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How to prepare the budget

How to prepare the budget
How to prepare the budget

Financial Statements

Financial statements can be defined as a variety of financial statements related to the company’s activity, which are specific to a specific financial period. These lists are issued by the company’s management to show many financial statements for the benefit of specific parties inside and outside the company, and among the most prominent external parties benefiting from Financial information in the financial statements: Creditors, investors, and shareholders whose future decisions are directly related to the values ​​of the financial statements and what emerges from that, as it shows the current position of the company and some indicators of the future financial position, and the budget is one of the most prominent financial statements, and in this article, it will be shown how to prepare the budget.

How to prepare the budget

The concept of the budget or statement of financial position is called one of the basic financial statements in accounting science, which are prepared in accordance with generally accepted accounting principles, and when preparing the budget, the detailed data of each of the assets, liabilities, and equity are mentioned, and the budget consists of two sides: where the right side contains assets The company, as for the left side, it contains the company’s obligations and shareholders’ rights or what is known as property rights. The balance sheet is presented at the end of the fiscal year after it was prepared by the financial accountant, and its importance highlights that it provides financial information about the company’s financial position at a particular moment, including all account values. At that moment, in the budget, there must be a state of equality between its two parts, as the total assets are always equal to the total liabilities plus the total equity. Here are the details of what the budget contains:

assets

It can be defined as the company's property and resources that it obtained through its commercial activity, so that these properties and resources have a future value, and there is a group of assets that are mentioned in detail when preparing the budget, the most prominent of which are the following:
  • cash amounts.
  • accounts receivable.
  • Inventory.
  • Prepaid insurance.
  • Prepaid rents.
  • Prepaid ads.
  • Prepaid legal fees.
  • short term investments.
  • lands. buildings. hardware.
  • intangible assets.
  • Allowance for doubtful debts.

commitments

It can be defined as a group of amounts owed by the company towards creditors or suppliers, and obligations are considered one of the most important sources of corporate assets, and when preparing the budget, they are mentioned along with property rights in the other part in which the assets do not fall, and among the most prominent obligations are the following:
  • Unearned revenue.
  • term deposits.
  • taxes payable.
  • salaries and wages.
  • Long-term loans The costs of issuing bonds.
  • wages payable.
  • interest payable.
  • Lawsuits are payable.
  • salary expense.
  • outstanding bonds.
  • Long-term loans.

Property rights

It is placed when preparing the budget alongside the obligations, and it refers to the book value of the company. When the company is a sole proprietor, it expresses the rights of the owners in it. But if it is a joint-stock company, the equity expresses the rights of its shareholders. Among the most prominent items of property rights that are mentioned in the list The financial position is as follows:
  • preferred stock.
  • common stock.
  • Retained earnings.
  • capital.
  • Treasury bonds.

Budgeting and Financial Analysis

In the financial analysis, some items in the budget are relied upon in order to show the existing situation of the company, whether by making some comparisons between some items, and the changes that occurred in the budget from one fiscal year to another, and there are some common ratios that are made after preparing the appropriation budget The most prominent of these financial ratios are the liquidity ratios through which the company’s ability to meet its obligations is measured during specific time periods, the most prominent of which is the trading ratio that results from dividing the total current assets by the total current liabilities, and the quick liquidity ratio that results from dividing the current assets after Subtract the value of the stock from the current liabilities.
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