Understanding Budgets, Cash Flows, General Ledgers, and Profit

School: Oceania University of Medicine - Course: MD 1901 - Subject: Accounting

Question 3 What are: a.Budgets. b.Cash flows. c.General ledgers. d.Profit and loss statements. a.A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a group of people, a business, a government, or just about anything else that makes and spends money.A government budget is an annual financial statement which outlines the estimated government expenditure and expected government receipts or revenues for the forthcoming fiscal year. Depending on the feasibility of these estimates, budgets are of three types -- balanced budget, surplus budget and deficit budget. b.The amount of cash or cash-equivalent which the company receives or gives out by the way of payment(s) to creditors is known as cash flow. Cash flow analysis is often used to analyse the liquidity position of the company.The three types of cash flows are operating cash flows, cash flows from investments, and cash flows from financing. c.A general ledger (GL) is a set of numbered accounts a business uses to keep track of its financial transactions and to prepare financial reports. Each account is a unique record summarizing a specific type of asset, liability, equity, revenue or expense.In accounting, a general ledger is used to record all of a company's transactions. Within a general ledger, transactional data is organized into assets, liabilities, revenues, expenses, and owner's equity. d.Simply defined, a profit and loss partner is a person or entity that enters into a partnership with another person or entity with the intention of sharing all profits or losses at a defined percentage.Profit and loss sharing (PLS) is the method utilized in Islamic banking to comply with the prohibition of interest. The Islamic solution, commonly referred to as Profit & Loss Sharing (PLS), suggests an equitable sharing of risks and profits between the parties involved in a financial transaction.