Financial forecasting and planning

Which of the following best describes a budget?

• A financial tool for consumers with little money
• A plan for saving and spending money
• A set of restrictions on how to spend money
• A statement of your assets and liabilities

Budgeting process

• The process of using historical information and knowledge of external factors to predict future sales.

• A method that involves estimating expenses for a future period as a percentage of the sales forecast.

• The way managers go about developing a budget, which is a process of both planning and control.

• Making future predictions about the budget based on current situations and trends.

What is the purpose of cash budget?

• Determine whether the firm is facing shortage or surplus of asset.

• Determine whether the firm is facing shortage or surplus of cash.

• To check whether the firm earn profit or get loss

Define long-term budget.

• A budget from one year to five years in the future.

• Making future predictions about the budget based on current situations and trends.

• A budget that is based on several possible levels of sales activity, also known as a variable budget.

• A formal one-year operating plan to achieve the financial goals of an organization.

Forecasting

• A formal one-year operating plan to achieve the financial goals of an organization.

• Making future predictions about the budget based on current situations and trends.

• A method that involves estimating expenses for a future period as a percentage of the sales forecast.

• The process of using historical information and knowledge of external factors to predict future sales.

How to forecast financial performance of business?

• Estimate revenues only throughout the planning time period.

• Estimate revenues and costs throughout the planning time period.

• Estimate costs only throughout the planning time period.

• Estimate profit or loss for the period.

Method of forecasting are:

Percentage of sales method

• A markup method based on expenses being increased by a predetermined amount, normally a percentage of the previous year’s expense.

• The difference between actual results (i.e., sales) and targeted or budgeted results.

• A document that reports an operation’s sales, expenses, and profits or losses for a period of time, such as a month, a quarter, or a year.

• A method that involves estimating expenses for a future period as a percentage of the sales forecast.

What are the sources of financing?

• Spontaneous

• Discretionary

• Description

• Calculated

What are the pro-forma financial statement?