Pro Forma Statement Essay

683 Words2 Pages
bulb-icon

Recommended: Macroeconomics quizlet

In this essay these issues will be discussed: Financial tools from chapter 5 that can help make better financial decisions, components of a comprehensive budget, purpose of each component, how are specialized budgets prepared?, and the relationship of specialized budgets to the comprehensive budget.
Financial tools that can help make better financial decisions

There are financial tools that can help make better financial decisions. One of these tools is the pro forma statement. The pro forma statement is based on certain assumptions and projections. Examples of pro forma statement include: balance sheets, income statements, and statements of cash flows. The pro forma statement provides a look at the potential results of financial decisions. …show more content…

Budgets are the financial requirements and consequences of plans. Budgets are made with specific goals in mind. Budgets can be used to lower living expenses, increase savings, or to save for a purpose such as: education or retirement. Budgeting is a process that involves these actions: defining goals, gathering information, forming expectations, reconciling goals and data, monitoring goals and variances, adjusting budgets, and redefining goals.
Reviewing your current financial condition can help with planning present and future goals. Budgets should be made in a conservative manner by overestimating costs and underestimating earnings.
A cash flow statement is another tool that can help with financial decisions. Cash flows that are not regular can put on the statement, on certain months when they occur. This allows one to see the impact of cash flow timing more transparently. The cash flow budget makes risk …show more content…

Incomes that are recurring are in part by selling labor and or liquidity. Recurring expenses derive from consumption of goods and or services. Recurring incomes and expenses fulfill short-term lifestyle goals, and makes free cash flows. To project recurring incomes and expenses some actions need to take place. These actions include using: financial history, new information, microeconomic and macroeconomic factors.
The purpose of a capital budget is for nonrecurring items. Capital expenditures involve long- term plans and goals. To project capital expenditures some course of action should take place which includes: new information, microeconomic factors, macroeconomic factors, and the time value of money.
How are specialized budgets prepared?

Specialized budgets are prepared with detailed information in reference to timing and cash flows. Specialized budgets main focus is on a certain asset or activity. For example a tax budget is frequently used to watch activities that are taxable.
What is the relationship of specialized budgets to the comprehensive

Show More
Related

  • Unit 5 Homework

    686 Words  | 2 Pages

    Operating budgets are budgets that deal mainly with the day-to-day operations of a facility. This may include wages, utilities, rent, and items purchased that have the intent of lasting less than a year (Johnston, n.d). This type budget provides the needed information regarding the cash on hand needed to operate the facility during a fiscal year. Capital expenditure budgets deal with more long term items such as equipment or property. As stated by Johnston (n.d.), it is necessary to have a capital budget for continued growth of the business. You complete this task by purchasing assets that produce an income. Capital expenditure budget have the potential to cover a five- to ten-year period (Baker & Baker, 2014, p.174). Items included in the capital expenditure budget may also include loan interest and bondholder's interest. The operating budget and the capital expenditure budget interact with one another. To demonstrate an example: a healthcare facility purchases a chemistry analyzer for its clinical laboratory. The chemistry analyzer is placed in the capital expenditure budget, but the maintenance for the analyzer is placed in the operational budget. The capital expenditure expense is the chemistry analyzer, but the materials used to maintain the chemistry analyzer are operational expense.

    Read More

  • Budget Analysis

    1842 Words  | 4 Pages

    The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred. The Budget Process Budgetary planning may differ between organizations. Single-period budgets and rolling budgets have methodologies that provide advantages and disadvantages that may make one budget time frame better than another. A single period may require less time in planning during a fiscal year, but is less accurate than a rolling budget that is continuously planned on a repetitive basis. In either case, budgets are planned in advance in order for a company to operate profitably, and less so to have "actual results equal budgeted results."

    Read More

  • Budget Reporting Paper

    645 Words  | 2 Pages

    The capital budget includes all long term acquisitions. It is continuing and multi-year. It is used when assets, equipment such as vital signs machines, are purchased or invested to the departments. The operating budget includes department daily needs, personnel, and supplies. It is for a period of a year.

    Read More

  • Nonprofit Budget Analysis

    741 Words  | 2 Pages

    Another popular type of budget is called a Captial Budget. This type of budget with track things such as assets, liabilities, net assets as well as goals for each of

    Read More

  • The Purpose Of A Comprehensive Budget

    413 Words  | 1 Pages

    A comprehensive budget is one that covers both recurring, and non-recurring incomes and expenses, so it covers all areas of finances. The comprehensive budget is comprised of both the operating budget, and the capital budget. The operating budget is important because it reflects the recurring income and expenses. That includes living expenses and income from wages, dividends, and interest. The purpose of this is to reflect the short term lifestyle choices. This would be a good way to see if maybe you are living beyond your means, or if maybe you should spend less money going to clubs, or on vacation. Golf memberships cost a pretty penny, and if you are finding it hard to pay your dues, this is a good way to see if maybe you just can’t afford

    Read More

  • Help You Get Out Of Debt

    573 Words  | 2 Pages

    Despite what you might read elsewhere, the first thing you need to do to get started creating a budget is to write down some short- and long-term goals. Why would you do this? I'll address the reason for this a bit later. Second, you need to gather up every one of your financial statements.

    Read More

  • Financial Analysis of Bucher Industries AG

    2357 Words  | 5 Pages

    Analyzing financial statements is an important part of decision making because valuation of profits and losses statements are the most important drivers in business. They are used to diagnose weak spots in the current strategy in an internal perspective and play a key role in making decisions to mitigate against such losses and helps in achieve it long term objective

    Read More

  • Essay On Beyond Budgeting

    1789 Words  | 4 Pages

    Quantitative plans are called budgets. Budgets are prepared to impose cost controls on the activities of an organization (Chenhall, 1986).Budgets are then used to evaluate the performance of the management and budget itself is considered as a standard to evaluate the performance Solomon, 1956). The purpose of the budget is also to implement the strategy of the organization and communicate it to the employees of the organization Rickards (2006). The change in the external environment has led to the change in the budgeting approaches from the initial cash based budgets to the zerio based budgets (Bovaird, 2007).

    Read More

  • The Importance of Capital Budgeting

    1818 Words  | 4 Pages

    Capital budgeting is one of the primary activities of a company. Most of the company uses capital budgeting for decision making process of selecting and evaluating long-term investment. The company have to make a right decision with respect to investment in fixed asset such as purchasing of new equipment and delivery vehicles, constructing additions to buildings and many more. The decision must be right because of the project involve huge amount of cash outflow and it is committed for many years.

    Read More

  • Personal Finance Unit 4 Paper

    560 Words  | 2 Pages

    How are specialized budgets prepared? What is the relationship of specialized budgets to the comprehensive

    Read More

  • The Theoretical Rationale For The NPV Approach To Investment Appraisal

    1388 Words  | 3 Pages

    One of the most important steps in the capital budgeting cycle is working out if the benefits of investing large capital sums outweigh the costs of these investments. The range of methods that business organisations use can be categorised in one of two ways: traditional methods and discounted cash flow techniques.

    Read More

  • Personal Budgeting

    709 Words  | 2 Pages

    The Basics Of Personal Budgeting A budget is a powerful financial tool that we need to take advantage of so that our finances can be managed the right way. You get to plan your spending and keep track of spending habits. The number one key in having a great budgeting plan is keeping things in balance. This should be taught when it comes to personal budgeting basics

    Read More

  • Creating a Personal Budget

    673 Words  | 2 Pages

    Budget is combining your income and expenses to decide how much money you are going to spend on an item. Budget is an important step to determine your financial health and financial stability. It’s an important financial tool because it can help plan for expenses, cut cost were unneeded, save for future goals, plan for emergencies that occur inexpediently, and list what you are spending and saving.

    Read More

  • The Importance Of Economics On Personal Life

    1804 Words  | 4 Pages

    It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support

    Read More

  • Money And Money: The Importance Of Money Management

    1236 Words  | 3 Pages

    Proper money management is of paramount importance. One of the tools of money management is a personal budget. A budget is a detailed analysis of an individual’s financial plan. It is a very important tool for personal money management. It basically helps in identifying how much money is earned and how much is spent. It must be broken down to the very last detail (read cent). If it is not detailed then it is not comprehensive, hence ineffective (Council, 2012). If one is in the know about how much money they earn and spend, they are in a better position to make accurate short-term and long-term financial projections and decisions.

    Read More

More about Pro Forma Statement Essay

Open Document