Make budgeting easier by following basic accounting rules
This post is part of a series that aims to describe fundamental accounting concepts that can be used in business budgeting. Some concepts have been simplified for learning purposes.
Read on to see how you can easily implement these concepts in Francis, a spreadsheet designed for business budgeting
Introduction to financial statements
Four financial statements are used to record, report and plan a company's financials:
The financial statements are fundamentally a system to organize your company’s finances. Combined, they describe the performance of the business.
Each statement includes a specific set of accounts. You can choose which accounts to include based on what is relevant to you and what detail level you want.
Accounts rely on financial statement rules when you call them for help
Use financial statements to guide your budget model
When considering the future, business managers and owners typically begin with forecasting revenue and expenses, which belong in the income statement. While this is a great start, many people struggle to
compare forecasted budget figures to actuals from the accounting tool in an efficient manner
If done properly, the financial statements can guide you to completing these tasks.
Following the financial statements for budgeting is called “3-way forecasting” and refers to the three statements:
balance sheet statement
cash flow statement
The statement of retained earnings is generally considered an “extra” statement.
Keep it simple
Following accounting theory when budgeting doesn't have to be super detailed and time-consuming. There are different details levels that each require different time commitments, and you can choose the one that is right for you.
How to get started
You can advance your budgeting set-up by understanding these four quick questions:
What are the four types of financial statements, and what are their purposes?
What accounts do the financial statements typically include?
What accounts connect the financial statements, and how should we interpret them?
What are some smart ways of forecasting for each account?
We’ll answer the questions in the following pages. So, let’s get started!