Making a Budget

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Part 2: Large Companies

So large companies keep budgets, too. Here is an example:

First National Toy Company

Date
Expenses
Income

3-24

$400

3-25

$400

3-26

$400

3-27

$600

3-28

$800

3-29

$800

3-30

$1500

3-31

Salaries $3,000

$1500

3-31

Rent $1,200

3-31

Electricity $800

3-31

Insurance $950

Total

$5,950

$6,400

The toy company earned $6,400 in sales in the last week of March. The company paid out $5,950 in expenses. So, the company made $450 in March, after all expenses are subtracted from income.

Why is it a good idea to know all this? What if the company wanted to buy a new computer system to calculate store receipts and that new computer system cost $2,000? If the company had only $450, then they'd have to buy the computer system using a credit card or some other method of borrowing money, like a loan. The company couldn't pay cash because enough wasn't available (unless the company had money stored away, which most companies usually do for just such an occasion).

Also, if the company has a few more months like March, when income is more than expenses, then the company can plan ahead and save up enough money to buy that computer system using cash, so the company doesn't have to borrow money and eventually pay more money (because a credit card company or a bank that gives a loan or will charge interest).

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