Why the confusion?
In everyday accounting language in Saudi Arabia and the Arab world, the word mizaniya is used to describe two reports that have nothing in common in purpose or timing. The first is the balance sheet (al-mizaniya al-umumiya), whose official name under international standards is the statement of financial position; in English it is also commonly called the balance sheet. The second is the estimated mizaniya, or budget, which is a financial plan for the future.
When a business owner asks the accountant to “prepare the mizaniya,” they may mean the annual financial statements to be uploaded to the Qawaem platform or submitted to the bank, or they may mean next year's plan. One question settles it: do you want to know where we are now, or where we want to get to?
The balance sheet: a snapshot at a specific moment
The statement of financial position shows the assets the business owns, the liabilities it owes, and the owners' equity, at a specific date such as 31 December. It is like a photograph: it does not tell you what happened during the year, only the position at the end of a particular day.
- It is based on the accounting equation: Assets = Liabilities + Equity.
- It relies on actual figures recorded in the books and supported by documents.
- It is prepared under the International Financial Reporting Standards endorsed by the Saudi Organization for Chartered and Professional Accountants (SOCPA), or the IFRS for SMEs standard for eligible businesses.
- It is subject to external audit where required, and is used by banks, government bodies and in calculating the Zakat base.
The budget: a plan for the coming period
The budget is an internal document prepared by management to set out the sales, purchases, expenses and cash flows it expects over a coming period, usually a year divided into months or quarters. It is closer to a forecast film of the year than to a photograph.
- Its figures are estimates based on historical data, management plans and market conditions.
- No accounting standard prescribes its format, so each business designs it to suit its needs.
- It is not submitted to any government body, but banks may ask for a cash budget when assessing a financing request.
- Its real value appears when it is compared with actuals every month and the differences are analyzed.
Example: a household goods store in Riyadh
First: the balance sheet at 31 December (actual figures)
| Item | Amount (SAR) |
|---|---|
| Cash on hand and at bank | 60,000 |
| Inventory | 240,000 |
| Customers (accounts receivable) | 50,000 |
| Furniture and fixtures, net | 150,000 |
| Total assets | 500,000 |
| Suppliers (accounts payable) | 140,000 |
| Short-term loan | 60,000 |
| Capital and retained earnings | 300,000 |
| Total liabilities and equity | 500,000 |
Second: the budget for next year (expected figures)
| Item | Expected amount (SAR) |
|---|---|
| Sales | 1,200,000 |
| Cost of goods sold (70%) | 840,000 |
| Gross profit | 360,000 |
| Salaries, rent and other expenses | 250,000 |
| Expected net profit | 110,000 |
The first table says the store owns assets worth half a million SAR today, of which 200,000 SAR is financed by others. The second table says management plans to sell 1.2 million SAR and earn a profit of 110,000 SAR. The first is audited and submitted to the authorities; the second is used internally for monitoring.
How do you use each one in your day-to-day work?
An accountant in a small business deals with both in different ways. The statement of financial position is prepared at least at the end of each financial year, and many businesses prepare it monthly to monitor liquidity and debt. It is the basis the bank looks at when calculating ratios such as the current ratio or the debt-to-equity ratio, and it is one of the inputs for calculating the Zakat base.
The budget, on the other hand, is usually prepared in the last quarter of the year in preparation for the new year, and then used every month as a yardstick: are actual sales close to plan? Have expenses exceeded the limit? It also helps with decisions such as hiring or opening a branch, because it answers the question: can our plan carry this new commitment?
A common mistake is to prepare the budget with optimistic figures to please the partners or the bank, then forget it in a desk drawer. A budget that is never compared with actuals is not much different from having no budget at all.
Quick comparison and how they complement each other
| Aspect | Balance sheet | Budget |
|---|---|---|
| Time | The past up to a specific date | The future |
| Nature of figures | Actual and documented | Estimated |
| Requirement | Legally required for companies | Optional and internal |
| Reference | Financial reporting standards | Management policy |
| User | Owners, banks and government bodies | Management and department heads |
The two complement each other. The balance sheet balances at year-end are the starting point of the budget: the opening cash, the inventory you will start with, and the receivables to be collected. At the end of the following year, the new balance sheet reveals whether the plan was achieved. An accountant who masters both can tell management where it stands, where it is heading, and how far it has strayed from the path.