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What Are The Components Of A Comprehensive Budget And What Is The Purpose Of Each Component?

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What financial tools described in this chapter can help you make better financial decisions?

Tools used to help you make better financial decisions are the budget process which include financial statements, macroeconomic indicators and microeconomic or personal factors.(pg 108)

The Budget Process

The budget process helps evaluate and plan a specific course of action for a particular financial situation. Goals are set to lay a foundation for information gathered on financial statements. The financial statements are used to determine the figures for limitations included in the budget. A time frame is set to reassess whether the budget is being followed and what course of action the variances have changed. The variances are determined by macroeconomic factors like the price of gas and microeconomic factors like the reduction of labor hours at work. The budget is then changed according to these occurrences, and checked to see if the initial goals can still be accomplished. …show more content…

A comprehensive budget is a compilation of an operating budget for short-term goals involving recurring items and a capital budget for long-term goals involving nonrecurring items.(p93)

Comprehensive Budget

The operating budget shows recurring income such as weekly, biweekly, or monthly wages from the sales of labor. It also shows expenses someone may have, for instance rent, energy costs, food and gas. The income and expenses are based on a specific time based on recurring income. The capital budget comes from free cash flow leftover after expenses have been paid. This budget determines the amount t of money to be used on personal items such as fixing a roof on a house or repairs on a car. It is used in business to invest in the market or buy supplies and equipment that can enhance the business

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