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Preparing & Formatting a Budgeted Balance Sheet

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  • 0:01 Budgeted Balance Sheet
  • 0:52 Assets
  • 2:12 Liabilities
  • 3:01 Shareholder Equity
  • 3:52 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

One of the most important documents that a business can produce is the budgeted balance sheet. In this lesson, we'll learn how to make one, as well as what each section contains and where the numbers come from.

Budgeted Balance Sheet

Your resume tells a story about your professional career. Your social media pages tell a story about your personal life. And your permanent record at school may very well have told a story about your life as a troublemaker. However, few documents tell quite the story for a business as a budgeted balance sheet. In short, a budgeted balance sheet presents a concise view of the company's assets, liabilities, and the amount of equity held by shareholders. It shows not only what a company has, but also where it expects to be going.

In this lesson, we'll learn how to build a budgeted balance sheet by walking through the major sections. We'll examine where each section gets its numbers from, and then see how the whole thing comes together. Along the way, we'll look at a widget company's budgeted balance sheet to see how it all works.

Assets

At the start of any budgeted balance sheet are the assets. There are two types of assets, current and fixed. Current assets are the property owned by a company, in whatever form that may take. At the top is often a reference to cash on hand, taken directly from the cash budget. Next are any accounts receivable, meaning the bills that a company expects to collect on. Finally, inventory is factored in. The sum of these assets gives us the total current assets.

However, that's not all the assets that we have. Additionally, there are also fixed assets. These include the worth that a company has built in its equipment and through depreciation. Many of these numbers come from the capital spending budget. Fixed assets combine with current assets to give us the total assets of a company.

Let's take a look at fictional widget company. Their current assets are $10 million. That comes from:

  • $4 million in cash on hand
  • $5 million in accounts receivable
  • $1 million in inventory

Meanwhile, $30 million is held as fixed assets, largely through the $5 million in depreciation and the $25 million in the factory itself. That means that our company has $40 million total in assets.

Liabilities

The next section contains the liabilities. Liabilities are those debts that a company owes. The first of these is often the accounts payable, which is the sum of the expenses in the selling and administrative expenses budgets, the materials budget, the labor budget, and the overhead budget. Next we have notes payable, which is a number taken from the financing budget that shows how much money should be paid toward debts. The sum of all of these is the total current liabilities.

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