Budgeted balance sheet definition
/What is a Balance Sheet?
A balance sheet lays out the ending balances in a company's asset, liability, and equity accounts as of the date stated on the report. As such, it provides a picture of what a business owns and owes, as well as how much as been invested in it. The balance sheet is one of the key elements in the financial statements, of which the other documents are the income statement and the statement of cash flows.
What is a Budgeted Balance Sheet?
The budgeted balance sheet contains all of the line items found in a normal balance sheet, except that it is a projection of what the balance sheet will look like during future budget periods. It is compiled from a number of supporting calculations, the accuracy of which may vary based on the realism of the inputs to the budget model. The budgeted balance sheet is extremely useful for testing whether the projected financial position of a company appears to be reasonable. It also reveals scenarios that are not financially supportable (such as requiring large amounts of debt), which management can remedy by altering the underlying model.
A budgeted balance sheet should be constructed for each period spanned by the budget model, rather than just for the ending period, so that the budget analyst can determine whether the cash flows estimated to be generated will be sufficient to provide adequate funding for the company throughout the budget period.
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Example of a Budgeted Balance Sheet
A sample budgeted balance sheet appears in the following exhibit. Its “source” column describes where the information for each line item is supposed to come from.
Other Budgeted Balance Sheet Issues
The totals of the asset side and the liability and equity side of the balance sheet are supposed to equal each other, but this may not be the case if the balance sheet is compiled using an electronic spreadsheet that has not been properly configured. If so, the person compiling the budget may elect to manually insert the difference between the two totals in a "plug" account, such as Other Assets or Other Liabilities. If the amount of this plug is material, it can call into question the reliability of the information in the budgeted balance sheet, and so may trigger an examination of the assumptions and formulas used to construct it.