21 May Budgeted Balance Sheet
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Definition: A budgeted balance sheet is an estimate of a company’s balance sheet at some future date. A projection is made for each account that appears in the balance sheet based on the company’s plans for the year. The accuracy of a budgeted balance sheet depends on the correctness of the assumptions that are used in the budgeting process.
What is a Budgeted Balance Sheet?
At the end of every year, companies prepare their financial projections for the next period. This exercise involves budgeting for:
What does Budgeted Balance Sheet mean?
- Manufacturing costs
- Raw material costs
- Employee costs
Johnson Engineering, an automotive parts manufacturer is preparing its budget for the next year. This is a time-consuming exercise as it involves preparing a projected income statement and estimates for the next 12 months for:
Example of a Budgeted Balance Sheet
- Cash balances at the end of each month.
- Inventory balances (raw materials and finished goods).
- Machinery and equipment balances.
- Accounts payable.
- Common stock.
- Retained earnings.
The budgeted balance sheet presents a complete picture of a company’s assets, liabilities, and shareholder’s equity. It estimates a company’s financial position at a future date and helps the management to take corrective steps during the course of the year.