Accounting Chapter: Budgets and Statements of Income and Expenditure

Budgets

• A budget is a financial plan that shows predicted income and expenditure items for an event, business, or organization.
• The purpose of a budget is to plan the future finances of an event, business, or organization.
• A budget consists of predicted values, actual values, and a comparison of both.
• Predicted values are estimated income and expenditure, while actual values are the real income and expenditure after the period has passed.
• The comparison of predicted and actual values helps in evaluating the performance of an event, business, or organization.

Key Features of Budgets

• Budgets allow for a comparison of predicted and actual values to assess performance.
• Historical data is used to inform future predictions, ensuring that predictions are based on observed data rather than guesses.
• Budgets help in understanding how the business or event is expected to perform financially.
• They provide a framework to compare planned financial performance against actual performance.

Statements of Income-and-Expenditure

• A statement of income-and-expenditure shows a summary of actual income and expenditure items for an event, business, or organization.
• The purpose of a statement of income-and-expenditure is to describe what has actually been spent and earned, providing an overview of the current finances.
• A statement of income-and-expenditure consists of income items, expenditure items, and net income.
• Income items are the total revenue received, while expenditure items are the total costs incurred.
• Net income is the difference between total income and total expenditure.

Key Features of Statements of Income-and-Expenditure

• The total revenue generated from various sources is represented as income.
• The total costs incurred for various categories are represented as expenditure.
• Net income is calculated using the formula: Net Income = Total Income - Total Expenditure.
• Statements of income-and-expenditure can be used to compare income and expenditure for two different periods, showing how income and expenditure have changed over time.

How to Work with Budgets and Statements of Income-and-Expenditure

Comparing Predicted and Actual Values

• The purpose of comparing predicted and actual values is to determine the accuracy of predictions and assess performance.
• The process involves listing both predicted and actual values, calculating the difference between predicted and actual values, and using the formula: Difference = Actual Value - Predicted Value.

Analyzing Income-and-Expenditure Statements

• The purpose of analyzing income-and-expenditure statements is to understand the financial performance over a specific period.
• The process involves listing income and expenditure items for two different periods, comparing the values to see changes over time, and calculating the net income for each period.
• The formula to calculate the change in value is: Change = Value in Later Period - Value in Earlier Period.