Steps for Developing an Annual Budget
The steps are as follows:
- Monthly income and account for incoming money every month.
- The value of fixed expenses.
- The value of variable expenses, such as the prices of raw materials needed for manufacturing.
- Compare the number of expenses with the amount of income.
- A decrease or increase in the amounts after comparing the expenditures with the revenues.
- Avoid overheads.
- Tuning tunnels.
How to Create a Budget
- Regular maintenance of machines and various devices.
- Ensure budget flexibility, to facilitate the handling of emergencies.
- Unexpected expenses to deal with problems in a less severe manner.
Factories are interested in determining their financial position each year and in studying profits and losses that affect their work. Preparing budgets depends on knowing their basic components, which are represented by some financial accounts, which include both the asset account (debit accounts) and the liabilities account. In addition to equity, these accounts must be weighed for the budget to be successful.
The equation: Assets = property rights + liabilities.
It participates in achieving future benefits and includes an account of assets on accounts receivable and inventory accounts.
Accounts related to the Asset Account:
- Cash Accounts: Money saved by factories and linked to their daily operations.
- Accounts receivable: Money that is debts to factory customers.
- Inventory value: The value of ready-made factory products for sale.
- Fixed assets: Private property.
Associated with financial events in the past, and it includes a set of sub-accounts, including capital account.
Accounts-related to the ownership account:
- Due payment: It is a short-term debt, owed by the factory to people and suppliers.
Also read: Tips for Achieving Financial Goals
The Importance of the Budget
- Presenting the facts: identifying and anticipating the financial needs of the factory.
- Reducing expenses: to reduce unnecessary expenses.
- Building a plan for the future: future business growth.
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