Prepare Budget Balance Sheet

A Budgeted Balance Sheet is a report that provides an overview of the future financial position of an entity. Unlike a traditional balance sheet, which reflects actual balances on particular dates, a budgeted balance calculates estimated values for assets, liabilities, equity, and other financial categories at some point in the future. As such, it is prepared using expected amounts rather than historical data.

Line items typically included in a budgeted balance sheet statement include cash and investments; accounts receivable; inventory; fixed assets; accounts payable; customer deposits; salaries payable; deferred revenue; current and long-term debt obligations; income taxes payable; and stockholders’ equity.

By calculating the current value of planned revenues and associated expenses over the specified period of time, businesses can create a snapshot of their anticipated financial state at any point in the future. This snapshot allows them to identify trends and make decisions that increase their chances of reaching desired financial goals.

A budgeted statement of financial position is a powerful forecasting tool used to predict the levels of assets, equity, and liabilities for a given period based on the amount allocated in the budget.

This document forms an integral part of the master budget, which is designed to provide management with a comprehensive overview of expected income and expenditure over an established period of time. By examining the changes between subsequent statements of financial position, businesses are able to spot trends in borrowing and spending habits to identify scope for improvement or future potential liabilities.

Master Budget

The master budget is a useful tool for corporate financial planning. It comprises various individual budgets such as sales, purchases, cash, production, and direct material budgets. This overall budget can also be called a corporate budget and is designed in the form of projected financial statements. With this master budget, management can utilize the projections to set goals in order to ensure that those goals are achieved by the company.

The creation of a master budget is a common practice among businesses, as it aids management in focusing their team’s efforts and accurately forecasting upcoming financial periods. Comparing actual versus budgeted financial statements allows for a comprehensive analysis of what areas need the most attention, affording decision-makers invaluable insight into where to focus their energy.

The preparation of the budgeted balance sheet, which is one component of a master budget, begins with the information related to assets, liabilities and equity in the budget.

Other categories within liability can include accounts payable and accrued liabilities like payroll expenses. Equity similarly can consist of accounts such as common stock or retained earnings. The balance sheet will ideally show a balanced picture of assets toward liabilities and equity by reducing both sides accordingly before presenting them for consideration.

Preparation of Budgeted Balance Sheet

The budgeted balance sheet is an important tool used to test the realism of a business entity’s projected financial position. It is created by adjusting the opening figures of assets, liabilities and equity for anticipated activities during a stipulated period and calculating the total amounts at the end of that certain duration. To create a more accurate budgeted balance sheet, it is essential to use realistic input when budgeting for each account. Here are the steps typically used in building a budgeted balance sheet:

1. Set up opening balances for assets, liabilities, and equities
2. Anticipate changes in asset figures due to purchases and depreciation
3. Foresee changes in liability figures due to receivables collection
4. Estimate modifications in equity amounts due to capital raising or dividend payments
5. Compute updated balances for all accounts
6. Review computed figures for accuracy

1. Opening balance

It is essential to create a budgeted statement of financial position in order to accurately capture the balance sheet for a particular financial period. An opening balances sheet is a type of balance sheet that lists the prior period’s balances for all assets, liabilities, and equity accounts.

This can be done by obtaining the actual data from the business’s accounting records. It is important to note that these balances are usually verified through an audit.

2. Obtain budgeted movements

To create a budgeted balance sheet, gather data for all relevant budgets, such as cash, raw materials, finished goods, and purchases. Ensure that the cash budget is included in the collection to ensure accuracy of your balance sheet.

3. Make Adjustment

When drafting a budget, market dynamics and internal factors must be taken into account. For instance, if a decrease in price is expected to lead to an increase in demand, adjustments should be made that reflect this potential increase in revenue. It’s crucial for the business to ensure they can logically defend the decisions made with regards to the budgeted balance sheet. Common adjustments usually included here include changes to the cost of goods sold, cash flow projections, and investments or profits.

Major Adjustment

Cash

n order to estimate cash and bank balance, an opening balance must be obtained from the previous year’s audited financial statements. The adjusting entries related to the movement of cash must be passed to arrive at the estimated closing balance. This amount is reported in the projected balance sheet. Thus, by performing this calculation, budget estimators can determine accurately what the amount of cash and bank balances should be for future periods.

Accounts Receivable

In order to reach the budgeted amount for accounts receivable, data from both the sales revenue and cash budget must be obtained. Calculating the closing balance of debtors in the budgeted period requires using this formula:

AR’ closing balance = Opening Balance + Credit Sale – Cash Collect

Finished Goods

In order to calculate the budgeted balance of finished goods, one must first start with the closing balance of the last accounting period. This will give you a base figure to adjust for any relevant values from the sales and production budget. This includes taking into account any changes in inventory quantity levels acquired or sold as well as any production costs such as materials, labour and overhead expenses incurred.

After taking into account all of these items, then use the following formula:

Budgeted Balance of Finished Goods = Opening balance + Production – Sale

This formula should give you the final value of your finished goods budget.

Accounts Payable

The Accounts Payable figure can be determined using the cash paid to creditors, total purchases budgeted, and the closing balance from the prior period. To calculate Accounts Payables, use this formula:

Accounts Payables = Opening balance + Credit purchase – Cash paid

Fixed Assets

To calculate the figure for non-current assets, utilize the plant utilization budget, projected plan report, and cash budget to make the necessary adjustments.

Fixed Assets = Opening Balance + New Purchase – Disposal

Loan

To complete the budget for the current period, one must start by gathering the closing figures of the loan from last year and incorporating this into the current period’s cash budget. Furthermore, new loans raised during this time should be added to the budget and repayments of the principal loan amount due in this accounting period should be taken into consideration. The combined balance of these two elements will then be presented in the liability portion of the newly developed balance sheet.

Retained Earning

Retained earnings at the end of last year are added to or subtracted from the budgeted net profit or loss on the income statement for the current period. This adjustment is necessary in order to calculate and report a corporation’s total retained earnings at any given period.

Retained Earning = Opening balance + Profit /(Loss) – Dividend