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.

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