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Basic accounting for budgeting
Make budgeting easier by following basic accounting rules
Four financial statements are used to record, report, and plan your company's financials:
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Financial statements are fundamentally a system to organize your company’s finances. Combined, they describe the performance of your 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.
When considering your future it is common to start with your revenue and expenses, which belong in your income statement. While this is a great start, some struggle to
- compare budget figures to actuals from your accounting tool
If done properly, the financial statements can guide you.
Following the financial statements for budgeting is called “3-way forecasting” and refers to the three statements:
- income statement
- balance sheet statement
- cash flow statement
The statement of retained earnings is generally considered an “extra” statement.
Following accounting theory when budgeting doesn't have to be super detailed and time-consuming. Different detail levels require different time commitments, and you can choose the one that is right for you.
You can advance your budgeting set-up by understanding these four quick questions:
- 1.What are the four types of financial statements, and what are their purposes?
- 2.What accounts do each financial statement typically include?
- 3.What "special" accounts connect the financial statements, and how do they work?
- 4.What are some smart ways of forecasting for each account?
We’ll answer the questions on the following pages. So, let’s get started!