The main benefit of a revenue budget is that it requires looking into the future. The revenue budget should contain the assumptions made about the future and the details about the number of units to be sold, the expected selling prices, and so on.

The budgeted amount of revenue is then compared to the budgeted amount of expenses in order to determine if the revenues are adequate. Learning of a potential problem before the year begins is a huge benefit because it allows for alternative actions to be developed prior to the start of the new year.

When an annual revenue budget is detailed by month, each month’s actual revenues can be compared to the budgeted amount. Similarly, the actual year-to-date revenues can be compared to the budgeted revenues for the same period. In other words, monthly revenue budgets allow you to monitor revenues as the year progresses instead of being surprised at the end of the year.

Let’s illustrate the benefits of a church’s revenue budget. A church’s annual revenue budget should be prepared independently of the expense budget. The total of the revenue budget is then compared to the annual expense budget. If the annual revenue budget is less than the annual expense budget, action can be taken to develop additional revenues or to reduce the planned expenses before the accounting year begins.

An additional benefit occurs when the annual revenue budget is also detailed by month.  Let’s assume that the church’s monthly revenue budgets will vary by the number of days of worship in the month, the time of year, and other factors. As a result, an annual budget of $370,000 might consist of the following sequence of  monthly amounts: $26,000 + $28,000 + $35,000 + $30,000 + $30,000 + $32,000 + $27,000 + $28,000 + $30,000 + $28,000 + $30,000 + $46,000. Based on these budgeted or planned monthly revenues, the church is expecting to have revenues of $181,000 for the first six months. If the actual revenues for the first six months are only $173,000 the church officials will see that an $8,000 problem at mid-year needs to be addressed. The shortfall also raises the question of whether there will be a similar shortage in the second half of the year. Thanks to the monthly revenue budget, church officials will be alerted early enough to find a solution. The solution could include a message to members asking for additional contributions, an edict to cut expenses for the remainder of the year, and so on.

Preparing a detailed, realistic budget requires you to plan ahead. This in turn gives you insights prior to the start of the accounting year. Monthly revenue budgets allow you to monitor the receipts right from the beginning of the year.

You balance a checkbook by comparing the amounts on your bank statement or in your bank account to the amounts you have in your checkbook or check register. Accountants refer to this as reconciling the bank statement or doing a bank reconciliation or bank rec (pronounced as “wreck”).

You can [...] Continue Reading…

Residual value, salvage value and scrap value are three terms that refer to the expected value at the end of the useful life of the property, plant and equipment used in a business. This estimated amount is used in the calculation of an asset’s depreciation expense, and often the [...] Continue Reading…

An accrual occurs before a payment or receipt. A deferral occurs after a payment or receipt. There are accruals for expenses and for revenues. There are deferrals for expenses and for revenues.

An accrual of an expense refers to the reporting of an expense and the related liability in the [...] Continue Reading…

Under the cash basis of accounting…

1. Revenues are reported on the income statement in the period in which the cash is received from customers.

2. Expenses are reported on the income statement when the cash is paid out.

Under the accrual basis of accounting…

1. Revenues are reported on the income statement [...] Continue Reading…