Definition

The budgeted statement of financial position depends on the various individual budgets which have been prepared.

The budgeted income statement and the cash inflow or outflow position must be known clearly before the budgeted statement of financial position can be prepared.

Also, all the other transactions during the year, as shown in the period budgets, must be classified and accounted for in the preparation of the statement of financial position.

A comparison of the estimated balance sheet with the actual statements can be used as a point of reference for the preparation of future budgets.

Explanation

The budgeted statement of financial position was developed at the same time as the budgeted statement of financial performance, as the interrelationships between the profit and loss activities and statement of financial position items must be considered.

For example, the shareholders’ equity in the budgeted statement of financial position increased by the amount of the budgeted profit. Also, levels of inventories and debtors were dependent on the estimated sales of the year.

Frequently Asked Questions

What is meant by a budgeted statement of financial position?

In general, a budgeted statement of financial position is a forecast for the future based on an analysis of what has been done in the past. In this sense, it is forward-looking and therefore different from an actual or historical statement of financial position which is a measurement of what has actually happened in the past.

What are some examples of budgeted income statement items which affect the budgeted balance sheet?

Some examples of budgeted income statement items which affect the budgeted balance sheet include sales, sales returns, and allowances, sales discounts, cost of sales, gross margin, Operating Expenses, other expenses/income, net income before taxes.

How do you construct a budgeted statement of financial position?

In constructing a budgeted statement of financial position, the first step is to use the estimated income for the coming year as a base. The resulting profit figure will be used as a starting point from which certain assets and liabilities are deducted to arrive at the value of shareholders' equity, which is the basis for the statement of financial position presentation.

What are some examples of budgeted balance sheet items?

Some examples of budgeted balance sheet items include inventory, Accounts Receivable, cash and bank balances, property plant and equipment (pp&e), intangible assets (including goodwill), and long-term debt.

How do you compare a budgeted balance sheet with an actual statement of financial position?

In comparing a budgeted balance sheet with an actual statement of financial position, the first step is to take over all assets and liabilities from the beginning of the year. The comparison will show whether or not assets have been added during the year, whether or not liabilities have been incurred during the year, and if any asset or liability has been disposed of during the year.

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