Preparation of Budgeted Balance Sheet in Easy Methods

Budgeted Balance Sheet

Introduction

The budgeted balance sheet includes every line item which is similar to the normal balance sheet. Additionally, it also contains the projected items that are required for the future budget. It is compiled with number of supporting calculations, where the accuracy depends on the inputs which are collected from the budget model.

Basic Concept

A budgeted balance sheet identifies the estimated financial status of the company. After observing the budgeted balance sheet, it can be assumed that the same figures will show up at the end of each financial year. Though it is not the actual balance sheet, still it has benefits of preparing it for the proper analysis of your business.

How to Prepare Budgeted Balance Sheet for Your Business?

The budgeted balance sheet is important for testing whether the projected financial status of the company is realistic or not. It also identifies the scenarios which is financially supportable where the management can provide alternative solutions to the budget models.

The budgeted balance sheet should be created for the specific period which is determined only for the budget models. Instead of calculating just at the end of the financial year, the budget analyst can easily identify whether the estimated cash flows will be sufficient enough for providing funds throughout the budget period.

Now, let us go through the steps for preparing the budgeted balance sheet:

  • Take Data from the Real Balance Sheet: For preparing the budgeted balance sheet, you are required to collect all the data from the real balance sheet at the beginning of each financial year.
  • Collect Data of Different Budgets : You should collect various data from different budgets like purchase budget, cash budget , raw material budget , projected sales , fixed assets on credit etc. All this data will be required for the preparation of the budgeted balance sheet.
  • Adjustment with Data of Different Budgets with the Real Balance Sheet: You can easily prepare the budgeted balance sheet with the help of few adjustments in Excel. Here are some of the adjustments :
    • Sundry Debtors : Depending upon the sales budget and the cash budget , you can adjust this by Opening Debtors + New Credit Sale – Cash Received
    • Fixed Assets: On the basis of projected plan report, plant utilization budget and the cash budget you can adjust the fixed assets by deducting the cost value of the new sales from the summation of opening balance and new purchases.
    • Cash In Hand And Cash At Bank: Depending on the cash budget, you can take the closing balance of the cash in hand and cash at bank from the real balance sheet.
    • Finished Stock: On the basis of the sales, cash and production budget, you can adjust by adding the opening finished stock and the new production and by deducting the new total sales from the summation.
    • Sundry Creditors: By depending on the purchase and cash budget, the sundry creditors can be adjusted by adding the amounts of opening creditors and the new credit purchase and by deducting the new payment from the result of the sum.
    • Loan Liabilities: Through the cash budget, you can adjust the loan liabilities by adding the opening balance of the loan liabilities and the new loan taken, if any. Now, the repayments can be deducted by the sum.
    • Raw Material Stock : Depending on the basis of the material, production and the cash budget you can adjust the raw material stock with the help of this formulae Opening Raw material Stock + New Purchase ( Cash + Credit ) – New Consumption .
    • Accumulated Depreciation: On the basis of the overhead budget, the accumulated depreciation can be adjusted by summing up the new depreciation with the opening balance of the accumulated depreciation.
    • General Reserve: The general reserve can be adjusted by summing up the opening balance of the general reserve with the new general reserve of the specific rates according to the law.
    • Paid In Capital: According to the cash budget, the paid in capital can be adjusted by summing up the opening balance of the paid in capital with the additional paid in capital.
    • Taxation: Depending on the new income tax law reports, financial budget of Government, tax returns and the cash budget, the taxation can be adjusted by summing up the opening payable tax and the new payable tax. The TDS and the advances can be deducted from the new sum.
    • Retained Earnings : Depending on the cash budget and the budgeted income statement , the retained earning can be adjusted with this formula : Opening retained Earning + Estimated Net Profit – ( Estimated Dividend declared + Estimated Dividend Paid )

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An Example

Now, let us go through an example of the budgeted balance sheet. Say, the figures in the budgeted balance sheet show $100,000 in the asset column, $50,000 in the liabilities. Therefore the equity results to $50,000.

While reviewing your budgeted balance sheet, you should keep in mind that enough assets are present in your business. The asset amount may include the inventory, the production and the resources for the manufacturing purposes. It should also include the assets of selling and distributing your products. When you are managing your business, it will generate liabilities also. As long as you have a proper planning of paying your liabilities, your business remains in good shape. If your revenue does not supply you enough cash, which is considered to be the best asset, you should have a plan of raising the capital. You can raise capital by issuing debt or by selling equities to the share holders.

Key Points from the Article

From the above article we can easily understand

  • The meaning of budgeted balance sheet
  • The basic concept of the budgeted balance sheet
  • The methods of using the budgeted balance sheet in your business

Though budgeted balance sheet is not similar to the real balance sheet, it helps to understand the status of the business and its projected status.

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