Creating an operating budget is a fairly simple task for any business owner.

Four Main Types of Budgets/Budgeting Methods. There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based. These four budgeting methods each have their own advantages and disadvantages, which will be discussed in more detail in this guide.

5 Most Common Budgeting Approaches and Their Pros & Cons

1. Incremental budgeting. Incremental budgeting computes a budget by applying adjustments to the preceding period’s actuals.
2. Zero-based Budgeting (ZBB)
3. Rolling (Continuous) Budgeting.
4. Activity-based Budgeting (ABB)
5. Performance-based Budgeting (PBB)

1. Identify expenses for the month. Look at every expenditure for the entire business.
2. Identify production for the month.
3. Divide expenses by production.
4. Determine revenue.
5. Subtract the cost per unit from the revenue per unit.

Variance Analysis= most common method of evaluating budget performance.

Cash on hand is the most liquid type of asset, followed by funds you can withdraw from your bank accounts. No conversion is necessary—if your business needs a cash infusion, you can access your funds right away.

What is the balance sheet order? The order of the balance sheet is as follows: Current Asset, Non-Current Assets, Current Liabilities, Non-Current Liabilites, Owner’s Equity, Offsets on the Balance Sheet and also in the order of their liquidy, with the most liquid terms (those closest to cash) first.

Mutual funds are considered liquid since investors can sell their shares at any time and receive their money within days.) Money-market funds, a type of mutual fund that invests in low-risk low-yielding investments like municipal bonds (Similar to mutual funds, money market funds are also liquid investments.)

Liquidity describes your ability to exchange an asset for cash. The easier it is to convert an asset into cash, the more liquid it is. And cash is generally considered the most liquid asset.

These asset classes can behave very differently….The main asset classes are:

• Shares (also known as equities).
• Bonds (also known as fixed-interest stocks).
• Property.
• Commodities.
• Cash.

There are mainly four types of liabilities in a business; current liabilities, non-current liabilities, contingent liabilities & capital. A liability may be part of a past transaction done by the firm, e.g. purchase of a fixed asset or current asset.

Current liabilities

• Type 1: Accounts payable. Accounts payable liability is probably the liability with which you’re most familiar.
• Type 2: Principle & interest payable.
• Type 3: Short-term loans.
• Type 4: Taxes payable.
• Type 5: Accrued expenses.
• Type 6.
• Type 1: Notes payable.
• Type 2: Mortgage payable.

Current Assets: Short-Term

• Cash and cash equivalents.
• Accounts receivable.
• Prepaid expenses.
• Inventory.
• Marketable securities.

Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets.

Examples of noncurrent or long-term assets include:

• Cash surrender value of life insurance.
• Bond sinking fund.
• Certain investments in other corporations.
• Plant assets such as land, buildings, equipment, furnishings, vehicles, leasehold improvements.
• Intangible assets such as goodwill, trademarks, mailing lists.

Current assets are assets that are expected to be converted to cash within a year. Noncurrent assets are those that are considered long-term, where their full value won’t be recognized until at least a year. Noncurrent liabilities are financial obligations that are not due within a year, such as long-term debt.

What are two acceptable FORMATS of the SFP? It is a simple list. All the assets are listed first, followed by liabilities and finally the equity account. There is a modified form of SFP called CLASSIFIED STATEMENT OF FINANCIAL POSITION.

There are four main factors that affect the calculation of depreciation expense: asset cost, salvage value, useful life, and obsolescence.

The distinction between current and noncurrent assets and liabilities is important because it helps financial statement users assess the timing of the transactions.