What Is the General Budget?
The general budget is a report and statement that helps you understand the financial position of the business. Through the general budget, you record all the assets you own alongside the liabilities during a specific accounting period, allowing you to assess the economic position of your company.
What is it?
The general budget is one of the five components of financial statements, which are:
- General budget,
- Income statement,
- Cash flow statement,
- Statement of comprehensive income,
- Statement of shareholders’ equity.
The general budget is not limited to profitable companies only. It is also essential for non-profit organizations as it provides them with information about the financial position of the organization. This information helps them calculate their own finances, including the funding they possess or potential funding from various sources.
The general budget presents information such as the company’s assets, liabilities, and the financial value of shareholders’ equity.
Why do companies need it?
One of the main objectives of creating the general budget is to understand the financial position of the organization in the short and long term. But it is also used for presenting:
Assets and liabilities: The budget is prepared to determine the value of assets and liabilities at the end of the year.
Information about creditors and debtors: The general budget provides a complete picture of the company’s creditors and debtors during a specific period.
Liquidity position disclosure: The general budget clarifies the liquidity position of the company.
Demonstrating solvency: Financial solvency refers to the company’s ability to meet its obligations, and fixed expenses, and achieve long-term growth and expansion.
Ratio calculation: Accounting ratios rely on data provided by the general budget, helping management identify strengths and weaknesses in the organization.
Financial information: The general budget provides accurate and reliable information about the financial position to management, government authorities, and shareholders.
Why do traders need it?
The general budget tracks and monitors expenses and profits. It is also known as the statement of financial position. The general budget provides a wealth of data and information about the company that you may have been unaware of.
The general budget is used to analyze the growth of the company by comparing it to previous years. It can also reveal potential business expansions and future expenditures. Additionally, the general budget helps to obtain loans because banks often refer to it to determine if the business is eligible for funding and what the returns and profits are. It also assists investors in understanding the project they are investing in and what they can expect in return.
Follow us on social media (Telegram, Instagram, Facebook) to get the Headway updates instantly.
