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Financial Budgets and Statements

An important step in the budgeting process is to prepare financial budgets. The financial budgets are prepared last because the operating and capital expenditures budget figures are needed to prepare them. The difference between the budget, also called a pro forma statement, and actual statements is that actual statements report past results, while the budget or pro forma statement projects future results. Financial statements are used by the internal managers of the firm, as well as external suppliers, creditors, and investors, who make decisions about whether to conduct business with the firm by evaluating its performance. The three primary financial statements are the income statement, balance sheet, and cash flow statement. The income statement presents revenue and expenses and the profit or loss for the stated time period. The balance sheet presents the assets and liabilities and owners’ equity. The cash flow statement presents the cash receipts and payments for the stated period.