The difference between balance sheet and budget in corporate accounting
Everyone wonders about the difference between budget and balance sheet in accounting, and in this article we will learn about the difference between them in detail.
Differences Between Budget and Balance Sheet
There are many differences between budget and balance sheet, and some raise questions about what are the characteristics of budget and balance sheet? We will learn about this answer in detail in the following points.
First: Balance Sheet
It is the documents and papers that specialize in proving ownership and rights specific to a certain entity and are presented based on a specific time period.
The balance sheet expresses the current financial position of the workplace.
Company balance sheets are prepared to determine the financial condition specific to the time period they are going through at the present time.
The balance sheet is prepared at the end of the fiscal year to clarify the true financial position of the company.
The balance sheet includes all information related to assets, documents, and ownership rights.
The balance sheet is prepared after the period in which company performance evaluations are conducted.
Second: Budget
It is considered a financial system that is established to estimate the future method that will be used in companies to reach final objectives.
It focuses on developing ideas about how to improve performance and increase income.
The budget is prepared to create suitable plans for organizing expenses in the coming days and determining the company's outputs and inputs and placing them in the right place.
It is prepared before the beginning of the fiscal year as a strategy to help manage resources correctly.
The financial budget includes accurate information about the expenses and revenues predicted for the new fiscal year.
It is established before the beginning of the fiscal year to determine the plans that will be worked on throughout the year.
Method of Preparing Budget and Balance Sheet
To prepare the budget and balance sheet, some specific steps must be followed to create each of them correctly:
First: Method of Preparing Financial Balance Sheet
Knowing the period for which the report is prepared: Determining the date that is placed within the balance sheet, which is usually at the end of the fiscal year.
Counting assets: Creating a complete plan about all assets specific to the entity for which the balance sheet is prepared, including current and non-current assets.
Knowing liabilities: Creating a comprehensive report about all financial obligations, including non-current and current liabilities.
Determining ownership rights: Knowing all accounts specific to shareholders, and this is done based on the difference between liabilities and assets.
Preparing data: Writing all data related to assets on one side of the balance sheet and ownership rights and liabilities on the other side, and making a comparison between them to ensure financial stability.
Second: Method of Preparing Financial Budget
Knowing the company's total income: Determining all sources of income returning to the company in a certain period.
Tracking expenses: Determining the company's expenses and dividing them into mandatory and optional expenses.
Setting financial objectives: Establishing correct plans to know the desired objectives that the company wants to achieve in the coming period.
Monitoring spending rate: Creating a plan for expenses so that they align with the company's objectives and cash flow.
Monitoring financial plans periodically: Following up on financial performance and changing strategy if necessary to balance revenues and expenses.
Purpose of Preparing Budget and Balance Sheet
Purpose of Preparing Balance Sheet
Knowing financial positions: The balance sheet helps companies understand the financial condition in the long or short term.
Determining assets: Clarifying specific data about the amount of assets specific to the end of the year.
Knowing competitors: Determining all obligations and loans due on the company that it is supposed to cover at the end of the year.
Reviewing creditors and debtors: Determining all information about creditors and debtors at a specific time.
Purpose of Preparing Budget
Verifying expenses and revenues: Knowing appropriate ways to modify financial resources and creating a budget to know the optimal use of revenues and expenses.
Performance analysis: Understanding good points by clarifying all financial evaluations of the company and determining overall performance.
Setting clear future plans: Knowing all revenues and expenses that the company will incur in the coming period and creating an advance plan to clarify methods for dealing with expected crises and resulting losses.
Achieving stability: Ensuring balance between revenues and expenses to avoid exposure to any financial deficit or surplus larger than expected profits.
Clarity and transparency: Establishing detailed financial plans for company owners about expenses and profits, which leads to increased credibility in financial performance.
Challenges Facing Budget and Balance Sheet Preparation
There are some challenges facing budget and balance sheet preparation in companies, which include:
Knowing expenses and revenues accurately: Conducting comprehensive analysis of all financial accounts, which requires conducting feasibility studies to understand challenges and difficulties that the company will face in the future.
Setting priorities: To prepare budget and balance sheet, expenses that the company must complete before anything else must be determined.
Knowing objectives: All financial objectives that the company wants to achieve for continued success and increased profits must be determined.
Changes in government systems: Many new laws and regulations are continuously established, which requires determining all data and evaluating it continuously.
Changes in the job market: Changes specific to the commercial market cause changes in company revenues and this causes many modifications.
Elements of Budget and Balance Sheet
Elements Specific to Budget
Revenues: Which represent all money that the government must collect in a certain time period and are divided into two types: tax revenues and non-tax revenues.
Expenses: Which are all expenditures that the government will pay in a specific period and include (facilitation expenses, investment expenses, public debt expenses).
Elements Specific to Balance Sheet
Assets: Assets are considered one of the balance sheet elements and are divided into:
Current assets: Properties that can be converted to cash during the fiscal year.
Non-current assets: Such as real estate and properties that the property owner cannot dispose of by selling them and converting them to cash.
Liabilities: Divided into:
Current liabilities: Money that must be paid before the end of the year such as short-term loans, accruals, and short-term debts.
Non-current liabilities: Money not expected to be paid this year such as long-term loans and retirement obligations.
