Budgeting and Forecasting Tools
Expert-defined terms from the Professional Certificate in Excel for Accounting Professionals course at London School of Business and Administration. Free to read, free to share, paired with a professional course.
Account Reconciliation refers to the process of comparing and matching the accou… #
Account Reconciliation refers to the process of comparing and matching the account balance in the company's general ledger with the corresponding account statement from the bank or other financial institution, to ensure that the two balances are equal and to identify any discrepancies or differences, which can be caused by timing differences, errors, or unauthorized transactions, and reconciling these differences is essential to ensure the accuracy and reliability of the company's financial statements and to prevent financial losses.
Accounting Equation is a fundamental concept in accounting that represents the r… #
Accounting Equation is a fundamental concept in accounting that represents the relationship between a company's assets, liabilities, and equity, and is expressed as Assets = Liabilities + Equity, which means that the total value of a company's assets is equal to the total value of its liabilities and equity, and this equation is the basis for the double-entry accounting system, where every transaction affects at least two accounts, and is used to prepare the company's financial statements, such as the balance sheet and income statement.
Accounts Payable are the amounts that a company owes to its suppliers or vendors… #
Accounts Payable are the amounts that a company owes to its suppliers or vendors for goods or services purchased on credit, and are considered a current liability, as they are typically paid within a short period of time, usually within 30 to 90 days, and the company must accurately record and track its accounts payable to ensure that it pays its debts on time and avoids late payment fees and penalties.
Accounts Receivable are the amounts that a company is owed by its customers for… #
Accounts Receivable are the amounts that a company is owed by its customers for goods or services sold on credit, and are considered a current asset, as they are typically collected within a short period of time, usually within 30 to 90 days, and the company must effectively manage its accounts receivable to ensure that it collects its debts on time and minimizes the risk of bad debts.
Accrual Accounting is a method of accounting that recognizes revenues and expens… #
Accrual Accounting is a method of accounting that recognizes revenues and expenses when they are earned or incurred, regardless of when the related cash flows occur, and is based on the matching principle, which matches the costs with the revenues earned, and is used to provide a more accurate picture of a company's financial performance and position.
Amortization is the process of allocating the cost of an intangible asset, such… #
Amortization is the process of allocating the cost of an intangible asset, such as a patent or copyright, over its useful life, and is similar to depreciation, which is used for tangible assets, such as property, plant, and equipment, and the amortization expense is typically recorded as an operating expense on the income statement.
Annual Budget is a comprehensive plan that outlines a company's financial goals… #
Annual Budget is a comprehensive plan that outlines a company's financial goals and objectives for a specific fiscal year, and is used to allocate resources, prioritize spending, and make informed decisions about investments and financing, and the annual budget is typically prepared by the management team and approved by the board of directors.
Asset Allocation is the process of dividing a company's investment portfolio amo… #
Asset Allocation is the process of dividing a company's investment portfolio among different asset classes, such as stocks, bonds, and cash, to achieve a desired level of risk and return, and is used to manage the company's investments and minimize the risk of losses, and the asset allocation strategy is based on the company's investment goals, risk tolerance, and time horizon.
Balance Sheet is a financial statement that presents a company's financial posit… #
Balance Sheet is a financial statement that presents a company's financial position at a specific point in time, and includes the company's assets, liabilities, and equity, and is used to assess the company's liquidity, solvency, and financial flexibility, and the balance sheet is typically prepared at the end of each accounting period.
Break #
Even Analysis is a financial tool used to determine the point at which a company's revenues equal its costs, and is used to evaluate the profitability of a product or service, and to identify the sales volume required to cover fixed and variable costs, and the break-even point is calculated by dividing the fixed costs by the contribution margin.
Budget Variance is the difference between the actual and budgeted amounts for a… #
Budget Variance is the difference between the actual and budgeted amounts for a specific line item or account, and is used to identify areas where the company's actual performance deviates from its budgeted performance, and to take corrective action to get back on track, and the budget variance is typically calculated by subtracting the budgeted amount from the actual amount.
Budgeting is the process of preparing a detailed plan for a company's financial… #
Budgeting is the process of preparing a detailed plan for a company's financial resources over a specific period of time, and is used to allocate resources, prioritize spending, and make informed decisions about investments and financing, and the budgeting process involves setting financial goals and objectives, identifying sources of funding, and estimating revenues and expenses.
Capital Budgeting is the process of evaluating and selecting long #
term investment projects, such as the purchase of new equipment or the expansion of a manufacturing facility, and is used to determine whether a project is worth pursuing based on its expected return on investment, and the capital budgeting decision is typically based on the project's net present value, internal rate of return, or payback period.
Cash Budget is a plan that outlines a company's expected cash inflows and outflo… #
Cash Budget is a plan that outlines a company's expected cash inflows and outflows over a specific period of time, and is used to manage the company's cash flow and ensure that it has sufficient liquidity to meet its financial obligations, and the cash budget is typically prepared on a monthly or quarterly basis.
Cash Flow Statement is a financial statement that presents a company's inflows a… #
Cash Flow Statement is a financial statement that presents a company's inflows and outflows of cash over a specific period of time, and is used to assess the company's ability to generate cash and meet its financial obligations, and the cash flow statement is typically prepared using the indirect method, which starts with net income and adjusts for non-cash items and changes in working capital.
Cost Accounting is a method of accounting that involves assigning costs to produ… #
Cost Accounting is a method of accounting that involves assigning costs to products or services, and is used to determine the cost of goods sold, inventory, and other expenses, and the cost accounting system is used to provide detailed information about the costs of production and to help management make informed decisions about pricing, production, and investment.
Cost Benefit Analysis is a financial tool used to evaluate the costs and benefit… #
Cost Benefit Analysis is a financial tool used to evaluate the costs and benefits of a specific project or investment, and is used to determine whether the benefits of the project outweigh the costs, and the cost benefit analysis involves estimating the costs and benefits of the project and calculating the net present value or internal rate of return.
Cost of Goods Sold is the direct cost of producing and selling a company's produ… #
Cost of Goods Sold is the direct cost of producing and selling a company's products or services, and is typically calculated by adding the beginning inventory, purchases, and other direct costs, and subtracting the ending inventory, and the cost of goods sold is a key component of the income statement and is used to calculate the gross profit.
Depreciation is the process of allocating the cost of a tangible asset, such as… #
Depreciation is the process of allocating the cost of a tangible asset, such as property, plant, and equipment, over its useful life, and is similar to amortization, which is used for intangible assets, and the depreciation expense is typically recorded as an operating expense on the income statement.
Discounted Cash Flow is a method of evaluating the present value of a future cas… #
Discounted Cash Flow is a method of evaluating the present value of a future cash flow, and is used to calculate the net present value or internal rate of return of a project or investment, and the discounted cash flow analysis involves estimating the future cash flows and discounting them using a cost of capital or discount rate.
Economic Order Quantity is a financial tool used to determine the optimal quanti… #
Economic Order Quantity is a financial tool used to determine the optimal quantity of a product to order or produce, and is based on the trade-off between the costs of ordering and holding inventory, and the economic order quantity is calculated by minimizing the total cost of inventory, which includes the ordering cost, holding cost, and stockout cost.
Financial Forecasting is the process of predicting a company's future financial… #
Financial Forecasting is the process of predicting a company's future financial performance, and is used to make informed decisions about investments, financing, and other business activities, and the financial forecasting process involves analyzing historical data, identifying trends and patterns, and using statistical models or other techniques to predict future financial outcomes.
Financial Modeling is the process of creating a mathematical representation of a… #
Financial Modeling is the process of creating a mathematical representation of a company's financial performance, and is used to evaluate the impact of different scenarios or assumptions on the company's financial outcomes, and the financial model is typically built using spreadsheet software, such as Excel, and includes variables, such as revenues, expenses, and cash flows.
Financial Ratio Analysis is a method of evaluating a company's financial perform… #
Financial Ratio Analysis is a method of evaluating a company's financial performance by calculating and analyzing financial ratios, such as the current ratio, debt-to-equity ratio, and return on equity, and is used to assess the company's liquidity, solvency, and profitability, and the financial ratio analysis involves comparing the company's ratios to industry averages or benchmarks.
Financial Statement Analysis is the process of reviewing and analyzing a company… #
Financial Statement Analysis is the process of reviewing and analyzing a company's financial statements, such as the balance sheet, income statement, and cash flow statement, and is used to assess the company's financial performance and position, and the financial statement analysis involves calculating financial ratios, identifying trends and patterns, and evaluating the company's financial strengths and weaknesses.
Forecasting is the process of predicting a company's future financial performanc… #
Forecasting is the process of predicting a company's future financial performance, and is used to make informed decisions about investments, financing, and other business activities, and the forecasting process involves analyzing historical data, identifying trends and patterns, and using statistical models or other techniques to predict future financial outcomes.
Funding is the process of obtaining capital or financing to support a company's… #
Funding is the process of obtaining capital or financing to support a company's business activities, and is used to finance investments, pay debts, and meet other financial obligations, and the funding options include debt financing, equity financing, and hybrid financing, such as convertible debt or preferred stock.
GAAP is an acronym for Generally Accepted Accounting Principles, which are a set… #
GAAP is an acronym for Generally Accepted Accounting Principles, which are a set of rules and guidelines that govern the preparation of financial statements, and are used to ensure that financial statements are presented in a fair and consistent manner, and the GAAP principles include the accounting equation, accrual accounting, and the matching principle.
IFRS is an acronym for International Financial Reporting Standards, which are a… #
IFRS is an acronym for International Financial Reporting Standards, which are a set of global accounting standards that provide a framework for the preparation of financial statements, and are used to ensure that financial statements are presented in a fair and consistent manner, and the IFRS standards include the accounting equation, accrual accounting, and the matching principle.
Internal Rate of Return is a financial metric that calculates the rate of return… #
Internal Rate of Return is a financial metric that calculates the rate of return of a project or investment, and is used to evaluate the profitability of the project, and the internal rate of return is calculated by finding the discount rate that makes the net present value of the project equal to zero.
Inventory Management is the process of managing a company's inventory levels, an… #
Inventory Management is the process of managing a company's inventory levels, and is used to minimize the costs of holding inventory, reduce stockouts, and improve customer service, and the inventory management involves analyzing demand, lead time, and other factors to determine the optimal inventory levels.
Investment Analysis is the process of evaluating the potential return on investm… #
Investment Analysis is the process of evaluating the potential return on investment of a project or investment, and is used to determine whether the investment is worth pursuing, and the investment analysis involves calculating the net present value, internal rate of return, or payback period of the investment.
Liquidity Ratio is a financial metric that calculates a company's ability to mee… #
Liquidity Ratio is a financial metric that calculates a company's ability to meet its short-term obligations, and is used to assess the company's liquidity and solvency, and the liquidity ratio includes the current ratio, quick ratio, and cash ratio.
Management Accounting is a method of accounting that involves providing financia… #
Management Accounting is a method of accounting that involves providing financial information to management to help them make informed decisions about the company's operations, and is used to evaluate the company's performance, identify areas for improvement, and develop strategies for growth and profitability, and the management accounting system is used to provide detailed information about the company's costs, revenues, and profits.
Net Present Value is a financial metric that calculates the present value of a f… #
Net Present Value is a financial metric that calculates the present value of a future cash flow, and is used to evaluate the profitability of a project or investment, and the net present value is calculated by discounting the future cash flows using a cost of capital or discount rate.
Operating Budget is a plan that outlines a company's expected revenues and expen… #
Operating Budget is a plan that outlines a company's expected revenues and expenses over a specific period of time, and is used to manage the company's operations and make informed decisions about investments and financing, and the operating budget is typically prepared on a monthly or quarterly basis.
Payback Period is a financial metric that calculates the time it takes for an in… #
Payback Period is a financial metric that calculates the time it takes for an investment to generate cash flows equal to its initial cost, and is used to evaluate the profitability of the investment, and the payback period is calculated by dividing the initial cost by the expected annual cash flows.
Predictive Analytics is a method of using statistical models and machine learnin… #
Predictive Analytics is a method of using statistical models and machine learning algorithms to predict future financial outcomes, and is used to make informed decisions about investments, financing, and other business activities, and the predictive analytics involves analyzing historical data, identifying trends and patterns, and using statistical models to predict future financial outcomes.
Profit and Loss Statement is a financial statement that presents a company's rev… #
Profit and Loss Statement is a financial statement that presents a company's revenues, expenses, and net income over a specific period of time, and is used to assess the company's profitability and financial performance, and the profit and loss statement is typically prepared at the end of each accounting period.
Return on Equity is a financial metric that calculates a company's net income as… #
Return on Equity is a financial metric that calculates a company's net income as a percentage of its shareholders' equity, and is used to evaluate the company's profitability and financial performance, and the return on equity is calculated by dividing the net income by the shareholders' equity.
Return on Investment is a financial metric that calculates the return on an inve… #
Return on Investment is a financial metric that calculates the return on an investment, and is used to evaluate the profitability of the investment, and the
Risk Management is the process of identifying, assessing, and mitigating risks t… #
Risk Management is the process of identifying, assessing, and mitigating risks that could impact a company's financial performance, and is used to minimize the potential losses and maximize the potential gains, and the risk management involves analyzing market trends, industry trends, and other factors to identify potential risks and develop strategies to mitigate them.
Sensitivity Analysis is a method of analyzing the impact of changes in assumptio… #
Sensitivity Analysis is a method of analyzing the impact of changes in assumptions or variables on a company's financial outcomes, and is used to evaluate the robustness of the financial forecasts and to identify areas where the company is most sensitive to changes in the assumptions, and the sensitivity analysis involves analyzing the impact of changes in variables, such as revenues, expenses, and cash flows, on the company's financial outcomes.
Standard Costing is a method of accounting that involves assigning a standard co… #
Standard Costing is a method of accounting that involves assigning a standard cost to a product or service, and is used to simplify the costing process and to provide a basis for pricing and inventory valuation, and the standard costing system involves establishing a standard cost for each product or service, and then comparing the actual costs to the standard costs to identify variances.
Time Series Analysis is a method of analyzing historical data to identify trends… #
Time Series Analysis is a method of analyzing historical data to identify trends and patterns, and is used to predict future financial outcomes, and the time series analysis involves using statistical models, such as regression analysis and autoregressive integrated moving average (ARIMA) models, to analyze the historical data and predict future financial outcomes.
Transfer Pricing is the process of setting prices for goods or services that are… #
Transfer Pricing is the process of setting prices for goods or services that are transferred between different divisions or subsidiaries of a company, and is used to allocate resources, manage risk, and optimize profits, and the transfer pricing involves analyzing the costs, market conditions, and other factors to determine the optimal transfer price.
Variance Analysis is the process of analyzing the differences between the actual… #
Variance Analysis is the process of analyzing the differences between the actual and budgeted amounts for a specific line item or account, and is used to identify areas where the company's actual performance deviates from its budgeted performance, and to take corrective action to get back on track, and the variance analysis involves calculating the variance, identifying the causes of the variance, and developing strategies to correct the variance.
Working Capital is the difference between a company's current assets and current… #
Working Capital is the difference between a company's current assets and current liabilities, and is used to manage the company's liquidity and solvency, and the working capital is typically calculated by subtracting the current liabilities from the current assets, and is used to evaluate the company's ability to meet its short-term obligations.
Zero #
Based Budgeting is a method of budgeting that involves justifying every expense or expenditure from scratch, and is used to eliminate unnecessary expenses, optimize resources, and improve financial performance, and the zero-based budgeting involves starting from a zero base and then adding expenses or expenditures that are necessary to achieve the company's goals and objectives.