Which of these statements is included in the draft of the budget?
A. A statement of financial positions
B. An income statement, a balance sheet, and a cash flow statement
C. An expense report
D. A sales forecast only
Answer (2)
In the context of drafting a budget, which is a financial plan for a defined period, certain financial statements may be included to provide a comprehensive view of an organization's financial health.
To address the question regarding which statement is typically included in a draft of the budget, let's evaluate each of the provided options:
A statement of financial positions - This term usually refers to a balance sheet, which provides a snapshot of an entity’s financial position at a specific point in time. Although relevant to financial planning, it's not typically included in a budget draft.
An income statement, a balance sheet, and a cash flow statement - These are three core financial statements. While all three are essential for understanding financial health, an income statement (which highlights revenue and expenses) and a cash flow statement (which shows cash inflows and outflows) are more directly related to budget planning. A balance sheet is less commonly part of a draft budget but provides useful contextual information.
An expense report - This focuses on past expenses and is often used for expense tracking rather than future planning, so it is generally not part of a budget draft.
A sales forecast only - A sales forecast estimates future sales and is a crucial component of a budget, but a comprehensive budget would require more than just a sales forecast.
The most comprehensive choice that would typically be included in a draft of the budget is therefore option (b) "An income statement, a balance sheet, and a cash flow statement," even though a balance sheet is not usually central to the budgeting process.
In conclusion, the best answer is:
(b) An income statement, a balance sheet, and a cash flow statement.
These statements provide vital details that help in planning and managing the financial resources efficiently.
The statement that is typically included in a budget draft is option (B): 'An income statement, a balance sheet, and a cash flow statement.' These financial statements help organizations plan and manage their financial resources by providing insights into income, expenses, and cash flow. Although the balance sheet is less commonly highlighted in budgeting, the income statement and cash flow statement are essential for effective financial planning.
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