At this point you should be able to understand where

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Unformatted text preview: these statements, you will find it easier to do. Luckily, you don’t have to fully understand accounting and bookkeeping in order to read and understand a standard budget format. Download free ebooks at 39 Understanding Budgets Managing Budgets 7. Understanding Budgets 7.1 Introduction A budget is a plan that normally covers one year, called a Fiscal Year. In many organizations, the Fiscal Year is from July to June. In others, it may be the calendar year. Organizations choose their Fiscal Year cycle for different reasons. The organization may take advantage of government funding that requires reporting in a certain time frame so that it’s easier to run their budget around that time frame. Or, there could be market reasons for choosing a particular Fiscal Year. The Fiscal Year will be referred to as FYXX. For example, a budget running from July, 2010 to June, 2011 will be called FY11, even though part of the budget year is in 2010. A calendar year budget, say from January, 2011 to December, 2011 will also be called FY11. Organizations approach the process of budgeting differently, depending on the type and size of the organization. For example, a public government budget might require a vote. A large corporation’s annual budget may also require a vote. But however the budget gets adopted, it normally starts in one of three ways. 7.2 Reading the Budget As we said, a budget provides information on planned expenses and revenues over a given time period, usually one year. A simple sample budget is provided in Figure 8. As you read the budget, you will see that: It is broken into categories corresponding to your Chart of Accounts. Each account will be represented by a line or lines on the budget, which is why they are called “budget line items.” There is a column for the amounts that were budgeted for each line item There is a column for the amounts that were actually spent (or earned) for each line item It might show the previous years’ budget information for each line item It might show the predicted budget amount for the next fiscal year (or t...
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This note was uploaded on 06/07/2013 for the course BA 201 taught by Professor Cuongvu during the Fall '13 term at RMIT Vietnam.

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