What are Budgeted Financial Statements?

Budgeted financial statements contain the expected financial results, financial position, and cash flows of a business. These budgeted financials include an income statement, balance sheet, and statement of cash flows. These statements are compiled from the annual budgeting model of a business. Budgeted financial statements are particularly useful when creating a new budget model, since you can view the impact of adjustments to the model on the budgeted statements. The management team then goes through several iterations of the model to bring the financial statements into line with its expectations and what the business is financially and operationally capable of achieving.

A sample budgeted income statement appears below, where the key element is the cash flow analysis at the bottom of the document. This analysis is used to determine whether the company can support the cash flows being projected by the model.

Budgeted financial statements are usually limited to a summary-level income statement and balance sheet, and are compiled within the budget model. Once finalized, the budget information is carried over into the budget field for each line item in the financial statements within a company's accounting software. The result is "budget versus actual" financial statements, usually accompanied by a column containing a variance between the budget and actual columns. In most businesses, this reporting format is confined to the income statement; there is no "budget versus actual" report for the balance sheet.

The accounting staff then examines the reasons for the reported differences, and includes the results of its investigations for the more material variances in a report that accompanies the financial statements.

A business that does not produce an annual budget does not have budgeted financial statements. However, if it instead uses a short-range forecast, this forecast can be used to create forecasted financial statements, probably just for the next few months or quarters.