The elements of income statement and balance sheet enables a financial analyst to ascertain the financial strength and weaknesses in personal financial decisions. In establishing a relationship between these tools in financial process; cash flow, assets and liabilities are clearly seen and can be apply appropriately during budgeting and financial decision making. Liquidity, profitability and efficiency of a financial decision is determined. It is through these financial tools that interpretation and analysis of the financial decisions and budgeting goals are made. It is through income statement, balance sheet, cash flow that a budget is evaluated to recommend and forecast for future budget analysis. It is obvious that the interest of a personal …show more content…
It becomes comprehensive when all the aspect of operating and capital budgets are accounted during the budget period. The two main components of a comprehensive budget are the operating budget and capital (financial) budget. The type of budget that displays the income and expenses is called operating budget. This type of budget shows living expenses, wages, interests and dividends within a short period of time. It is another form of income statement for a short term budget period. Operating budgets focuses on recurring income and expenses recorded and planned under a lifestyle goals or preferences withing a short period of budget time. Operational budgets include sales budget, production budget, direct material purchase budget, direct labour budget, overhead budget, selling and administrative expenses budget and cost of good manufactured budget.. …show more content…
It includes the budget balance sheet as of the end of a certain budget period. It also displays the budgeted statement of changes in financial positions. As we know that variances can occur within the budget period which in turn affects the goal and objectives of the budget, the capital expenditure budget and all other bugets required in financial management are included and shown in this component. The capital or financial budgeting focuses on the amount of income remaing after the living expenses had been made. This remaining cash is known as free cash flow and it is used for capital expenditures and investment. Long term plans are shown in this type of budgeting such as saving for your grandchild\'s education. Capital or financial budget includes schedule of expected cash received from customers, scheduling of expected cash payment to suppliers, cash budget, budget income statement and budget balance