Budgeted Income Statement
A budgeted income statement is a financial projection that estimates a company’s revenues, expenses, and net income for a specific period, usually a year or a quarter. It is a part of the overall budgeting process and helps the management to plan for future operations, set financial goals, and allocate resources effectively.
The budgeted income statement includes projected figures for various line items, such as sales revenue, cost of goods sold, gross margin, operating expenses (salaries, rent, utilities, etc.), and taxes. The difference between the projected revenues and expenses is the budgeted net income or net loss for the period.
The budgeted income statement serves as a roadmap for the company’s financial performance and is used to monitor and compare actual results throughout the budget period. It allows the management to identify any deviations from the budget, address issues, and make informed decisions to keep the company on track towards its financial goals.
Example of a Budgeted Income Statement
Let’s create a simple example of a budgeted income statement for a small business, ABC Corporation, for the first quarter of the year:
Budgeted Income Statement for Q1
- Sales Revenue:
- Product A: 1,000 units * $50 = $50,000
- Product B: 500 units * $80 = $40,000 Total Sales Revenue: $90,000
- Cost of Goods Sold (COGS):
- Product A: 1,000 units * $30 = $30,000
- Product B: 500 units * $50 = $25,000 Total COGS: $55,000
- Gross Margin: Total Sales Revenue – Total COGS = $90,000 – $55,000 = $35,000
- Operating Expenses:
- Salaries: $20,000
- Rent: $5,000
- Utilities: $2,000
- Advertising: $3,000 Total Operating Expenses: $30,000
- Operating Income (EBIT): Gross Margin – Operating Expenses = $35,000 – $30,000 = $5,000
- Taxes (assume a 25% tax rate): EBIT * Tax Rate = $5,000 * 0.25 = $1,250
- Net Income: EBIT – Taxes = $5,000 – $1,250 = $3,750
This budgeted income statement shows that ABC Corporation expects to generate $90,000 in sales revenue, incur $55,000 in cost of goods sold, and have $30,000 in operating expenses during the first quarter. After accounting for taxes, the company anticipates a net income of $3,750 for the quarter. Management can use this information to make decisions and allocate resources to meet the company’s financial goals.
