1.2.6. The Financial Position Budget
The final budget that may be prepared is the financial budget. This is also known as the financial position budget or the balance sheet budget. This type of budget includes information that is grouped into three main categories: assets, liabilities and owner's equity. Assets include anything that the business uses to generate profits and run the business and include items such as bank balances, stock, machinery, buildings, etc. Liabilities are any costs that have been incurred in running the business that remain to be paid. Examples of liabilities include bank overdrafts, loans and creditors
The difference between the assets and liabilities is the budget for the owner's equity . The figure for owner's equity indicates how much of the worth of the business is held by the owners after taking into account all the debts of the business. The owner's equity budget includes undistributed profits and makes adjustments for dividends paid.
Table 2 Example of a financial position budget
Assets |
|
|
Cash |
600,000 |
|
Debtors |
1,200,000 |
|
Inventory |
800,000 |
|
Buildings |
7,000,000 |
|
Plant and Equipment |
3,400,000 |
|
Investments |
600,000 |
|
Total Assets |
|
13,600,000 |
|
|
|
- Liabilities |
|
|
Creditors |
600,000 |
|
Loans |
4,200,000 |
|
Total Liabilities |
|
4,800,000 |
|
|
|
= Owner's Equity |
|
8,800,000 |
Note:
There are many acceptable ways to produce budgets as different businesses have different needs for financial reporting. For instance, budgets may be broken down into quarters or months if yearly figures do not provide enough direction. Additional budgets may also be prepared for measuring the productivity of specific departments.
Activity 2
- What do you know about your organisation's budget process?
- Are all these steps included in your organisation's budget process?
- If not, which ones are not included, and why do you think they are not included?
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