How Are Specialized Budgets?

Decent Essays


a. What financial tools described in this chapter can help you make better financial decisions?
The financial tool such as a pro-forma statement can give a better view of a real financial situation of an individual. The financial statements are used to prepare budgets in order to make better financial decisions and planning to achieve short and long term goals. There are different processes in order to prepare a budget, and these processes are: defining goals and gathering data; forming expectations and reconciling goals and data; creating the budget; monitoring actual outcomes and analyzing variances; and, adjusting budget, expectations, or goals.

b. What are the components of a comprehensive budget and what is the purpose of each component?

The components …show more content…

How are specialized budgets prepared? What is the relationship of specialized budgets to the comprehensive budget?

A specialized budget focuses on a specific financial aspect or a goal. “It usually reflects one particular activity in more detail, such as the effect of owning and maintaining a particular asset or of pursuing a particular activity” (Siegel & Yacht, 2010). Examples of specialized budgets are cash budget and tax budget. A cash budget analyzes an inflow and outflow of cash over a certain period of time and it helps the individual to determine if he has enough liquidity to meet obligations. The tax budget is the tax charged on an income such as self-employment, a sale of real estate or other goods that may have relevant tax consequences.
The relationship of the specialized budget to the comprehensive budget is that the specialized budget is incorporated in the comprehensive budget as a component of the total financial activity. For example, if an individual finds out, through the cash budget, that the loan repayment has been paid off and the last payment was refunded 50%, he can use this extra cash to finance some of the projects and achieve a goal sooner.

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