Definition: A budgeted balance sheet is a report that management uses to predict the levels of assets, liabilities, and equity based on the budget for the current accounting period. In other words, the budgeted balance sheet shows where all of the accounts would be at the end of a period if the actual company performance matched the budgeted estimates. Preparing this report is usually the last step in finalizing a master budget plan.
What Does Budgeted Balance Sheet Mean?
At the end of each period, management usually starts planning a master budget for the next period. The master budget is made up of a ton of smaller budgets for sales, cash, selling expenses, and general expenses. All of these budgets are combined to make one big, comprehensive financial plan.
Once the master budget is done, management has to see what the company financial statements will look like if the company can achieve their goals for the period. That’s when the budgeted income statement and balance sheet are made.
These two reports summary the impact the budget will have on the financial position of the company if the budgeted numbers are met. Think of it like a sanity check. Management wants to check their plans to make sure they are in the best interest of the company in the long run.
Example
For example, production managers might want to increase manufacturing facilities in the next period by taking out a loan. Although the extra production capacity will add additional income to the bottom line, it will also increase the overall debt load on the balance sheet. Depending on current debt covenants, the company may not be able to take out additional loans even if that means sacrificing potential revenues.
These are topics that management uses the budgeted balance sheet to discuss.
