Accounting All-in-One For Dummies, with Online Practice, 2nd Edition

Chapter 5

Mastering and Flexing Your Budgeting

IN THIS CHAPTER

Applying accrual accounting to the budget process

Producing a budgeted income statement and balance sheet

Creating a flexible budget

You can master budgeting basics and figure out how to budget for sales and production in Chapter 4. Then you’re ready to tackle more detailed aspects of budgeting, weigh the pros and cons of budgeting with cash-basis or accrual accounting, and develop a flexible budget.

This chapter explains how to use the information from your budget for sales and production to create a budgeted income statement and balance sheet. It also reveals how to put together a flexible budget that accommodates different levels of production. But the first order of business is to understand why accountants use accrual rather than cash-basis accounting to create budgets.

Budgeting with Cash or Accrual Accounting

Nearly every large corporation uses accrual accounting both to record transactions and to budget. Small businesses have a choice: They can use cash basis accounting or accrual basis accounting:

• Cash basis accounting posts revenue and expenses to the financial statements based solely on cash transactions. ...