Budget Entries (Junior Cert Business Studies): Revision Notes
Budget Entries
When creating a personal or household budget, there are three special budget entries that help you get a clearer picture of your financial situation. These entries show not just your income and spending, but also how money flows from one period to the next. Understanding these entries is essential for effective financial planning.
Budget entries go beyond simple income and expenditure tracking. They provide a comprehensive view of your financial position over time, helping you make better financial decisions.
Net cash
Net cash reveals whether you have a financial surplus or deficit each month. It shows the difference between what you expect to earn and what you plan to spend during the same period.
Net cash is the difference between expected income and planned expenditure.
Calculating net cash
The formula for net cash is straightforward:
Worked Example: Murphy Family's Net Cash
Let's calculate the Murphy family's January budget:
- Total income: €4,200
- Total expenditure: €3,800
- Net cash: €4,200 - €3,800 = €400
This positive result shows the Murphy family has a surplus for January.
Understanding surplus and deficit
Your net cash result tells you important information about your monthly financial position:
- Surplus (+): When your expected income is greater than your planned expenditure, you have a surplus. This means you'll have money left over.
- Deficit (-): When your planned expenditure is greater than your expected income, you have a deficit. This means you'll need to use savings or borrow money.
When showing a deficit in your budget, the amount is typically written in brackets. For example, if the Murphy family had a deficit of €300, it would be shown as (€300).
Opening cash
Opening cash represents your starting financial position for each budget period. This entry helps you understand how much money you already have available before considering your monthly income and expenses.
Opening cash is any money an individual or household has at the start of a given period.
How opening cash works
Opening cash shows the amount of money you have available at the beginning of the period covered by your financial plan. This might include:
- Money in your current account
- Cash savings
- Money set aside from previous months
For example, if the Murphy family starts their budget period with €150 in their account, their opening cash for the first month would be €150.
Closing cash
Closing cash shows how much money you plan to have remaining at the end of each budget period. This entry is crucial because it becomes the opening cash for the following period.
Closing cash is any money an individual or household plans to have left over at the end of a given period.
Calculating closing cash
The formula for closing cash combines your net position with your starting position:
Worked Example: Murphy Family's Closing Cash
Using our Murphy family example:
- Net cash: €400
- Opening cash: €150
- Closing cash: €400 + €150 = €550
This shows they will have €550 remaining at the end of January.
The connection between periods
An important principle of budget entries is that closing cash for one month becomes the opening cash for the next month. This creates a continuous flow in your financial planning.
For instance, if the Murphy family's closing cash in January is €550, then their opening cash for February will also be €550. This connection ensures your budget accounts for money carried forwards from previous periods.
This linking system prevents you from "losing track" of money between budget periods and ensures your financial planning remains accurate over time.
How these entries work together
These three budget entries work together to provide a complete picture of your financial situation:
- Opening cash shows what you start with
- Net cash shows whether you'll save or overspend during the month
- Closing cash shows what you'll end up with
This system helps you track not just monthly income and expenses, but also how your financial position changes over time. It allows you to spot potential problems (like running out of money) before they happen and plan accordingly.
Including these entries in your budget gives you much more accurate financial planning than simply looking at income and expenditure alone.
Key Points to Remember:
- Net cash = Total income - Total expenditure (shows monthly surplus or deficit)
- Opening cash is the money you have at the start of each budget period
- Closing cash = Net cash + Opening cash (shows money remaining at period end)
- Closing cash for one period becomes opening cash for the next period
- These entries help you track money flow over time, not just monthly income and spending