Budgeted Financial Statements
Budgeted financial statements are financial reports that are prepared based on a company’s projected revenues, expenses, and other financial activities for a specific period. These statements are part of the budgeting process and are used by management to plan for the company’s future financial performance, set targets, allocate resources, and make strategic decisions. The main budgeted financial statements include:
- Budgeted Income Statement: Also known as a pro forma income statement, this statement provides an estimate of a company’s revenues, expenses, and net income for a specific budget period. It is based on sales forecasts, production budgets, and other operational budgets. The budgeted income statement helps management to evaluate the company’s profitability and identify potential areas for cost savings or revenue growth.
- Budgeted Balance Sheet: This statement projects the company’s financial position at the end of a budget period, including its assets, liabilities, and equity. It is prepared based on the budgeted income statement, cash budget, and other financial data. The budgeted balance sheet helps management to evaluate the company’s liquidity, solvency, and overall financial health.
- Budgeted Cash Flow Statement: This statement estimates the company’s cash inflows and outflows during a budget period, showing the net impact on its cash position. The budgeted cash flow statement is essential for managing liquidity, planning for financing needs, and ensuring that the company has sufficient cash to meet its operational and financial obligations.
Budgeted financial statements are essential tools for financial planning and decision-making. They provide a roadmap for a company’s financial activities and enable management to set targets, monitor performance, and make necessary adjustments to ensure the company remains on track to achieve its financial goals. However, it is essential to remember that budgeted financial statements are based on assumptions and estimates, and actual results may differ from the projections.
Example of Budgeted Financial Statements
Let’s consider a fictional company called ABC Widgets that is preparing its budgeted financial statements for the upcoming year. Here are simplified examples of the three main budgeted financial statements:
- Budgeted Income Statement
Projected Revenues:
Sales Revenue (50,000 widgets x $20/widget) = $1,000,000
Projected Expenses:
Cost of Goods Sold (50,000 widgets x $10/widget) = $500,000
Operating Expenses:
Salaries and Wages = $250,000
Rent = $50,000
Utilities = $20,000
Marketing = $30,000
Depreciation = $25,000
Miscellaneous Expenses = $15,000
Total Operating Expenses = $390,000
Projected Net Income:
Operating Income (Revenues – Expenses) = $1,000,000 – $500,000 – $390,000 = $110,000
Assets:
Current Assets:
Cash = $150,000
Accounts Receivable = $80,000
Inventory = $100,000 Total
Current Assets = $330,000
Fixed Assets:
Property, Plant, and Equipment (Net) = $400,000
Total Assets = $730,000
Liabilities:
Current Liabilities:
Accounts Payable = $60,000
Short-term Debt = $40,000
Total Current Liabilities = $100,000
Long-term Liabilities:
Long-term Debt = $200,000
Total Liabilities = $300,000
Equity:
Common Stock = $300,000
Retained Earnings = $130,000
Total Equity = $430,000
Total Liabilities and Equity = $730,000
- Budgeted Cash Flow Statement
Cash Flow from Operating Activities:
Net Income = $110,000
Add: Depreciation = $25,000
Increase in Accounts Receivable = -$20,000
Increase in Inventory = -$30,000
Increase in Accounts Payable = $10,000
Net Cash Flow from Operating Activities = $95,000
Cash Flow from Investing Activities:
Purchase of Equipment = -$50,000
Net Cash Flow from Investing Activities = -$50,000
Cash Flow from Financing Activities:
Repayment of Long-term Debt = -$20,000
Net Cash Flow from Financing Activities = -$20,000
Net Increase in Cash:
($95,000 + -$50,000 + -$20,000) = $25,000
Ending Cash Balance:
Beginning Cash Balance ($150,000) + Net Increase in Cash ($25,000) = $175,000
This example provides a simple illustration of budgeted financial statements for ABC Widgets. The company can use these statements to guide its financial planning, resource allocation, and decision-making throughout the year. It’s important to remember that actual results may differ from the budgeted figures, and management should regularly review and update the budget as needed to ensure accurate financial planning.
