Budgeted Balance Sheet
A budgeted balance sheet is a financial statement that presents a company’s projected financial position at the end of a specific period, typically a fiscal year or quarter. The budgeted balance sheet is based on the information from the company’s operating and financial budgets and provides estimates for assets, liabilities, and equity at a future point in time.
The primary purpose of a budgeted balance sheet is to serve as a management tool for planning and controlling a company’s resources, evaluating its financial performance, and making informed decisions. It also helps the management identify any potential liquidity or solvency issues in advance and make necessary adjustments in the company’s financial plans.
A budgeted balance sheet consists of three main components:
- Assets: These are the company’s resources that have future economic value. In the budgeted balance sheet, assets are estimated based on the company’s capital expenditure budget, cash budget, and other relevant financial projections. Assets are typically divided into current assets (cash, accounts receivable, inventory) and non-current assets (property, plant, and equipment).
- Liabilities: These are the company’s obligations or debts owed to external parties. Liabilities are estimated based on the company’s debt repayment schedules, accounts payable projections, and other financial commitments. Liabilities are generally categorized as current liabilities (accounts payable, short-term debt) and non-current liabilities (long-term debt, bonds).
- Equity: This represents the residual interest in the company’s assets after deducting its liabilities. Equity is composed of the owner’s initial investment, retained earnings, and other components such as share capital and reserves. The budgeted equity is calculated based on the company’s projected net income and retained earnings for the budget period.
The budgeted balance sheet is a crucial part of a company’s overall budgeting process and provides valuable insights into its anticipated financial position. It helps management to make strategic decisions about investments, financing, and other aspects of the business to ensure the company’s long-term stability and growth.
Example of a Budgeted Balance Sheet
Let’s assume we have a small manufacturing company that has prepared an operating and financial budget for the upcoming fiscal year. Based on their projections, they have prepared a budgeted balance sheet as follows (all amounts in thousands of dollars):
Budgeted Balance Sheet as of December 31, 2023:
Assets Current Assets:
- Cash: $50
- Accounts Receivable: $100
- Inventory: $200 Total Current Assets: $350
Non-Current Assets:
- Property, Plant, and Equipment: $400 Total Non-Current Assets: $400
Total Assets: $750
Liabilities Current Liabilities:
- Accounts Payable: $75
- Short-term Debt: $50 Total Current Liabilities: $125
Non-Current Liabilities:
- Long-term Debt: $225 Total Non-Current Liabilities: $225
Total Liabilities: $350
Equity
- Common Stock: $200
- Retained Earnings: $200 Total Equity: $400
Total Liabilities and Equity: $750
In this example, the budgeted balance sheet presents the company’s estimated financial position at the end of the fiscal year 2023. The company’s total assets are projected to be $750,000, which is the sum of current assets ($350,000) and non-current assets ($400,000). The total liabilities are estimated to be $350,000, which includes current liabilities ($125,000) and non-current liabilities ($225,000). The equity section shows the owner’s investment (common stock) of $200,000 and retained earnings of $200,000, resulting in total equity of $400,000.
The budgeted balance sheet helps the company’s management to analyze its projected financial health and make informed decisions about resource allocation, financing, and other strategic aspects of the business.
