Budgeting

Budgeted Financial Statements

Purpose

The budgeted income statement and budgeted statement of financial position form the master budget. They show the expected financial position of the business at the end of the budget period, drawing on all functional budgets.

Budgeted income statement

Prepared in the same format as a normal income statement, using budgeted figures:

Budgeted Income Statement for the year ended [date]
                                    £
Revenue (from sales budget)         X
Cost of sales (from purchases/
  production budget)               (X)
─────────────────────────────────────
Gross profit                        X
Expenses (from functional budgets) (X)
─────────────────────────────────────
Profit from operations              X

• Revenue comes from the sales budget
• Cost of sales uses budgeted purchases and inventory figures
• Expenses come from labour, overhead, and other functional budgets

Budgeted statement of financial position

Prepared in the standard SFP format using end-of-period budget figures:

Non-current assets (opening NBV + additions − depreciation)    X
Current assets:
  Inventory (closing inventory from production/purchases budget) X
  Trade receivables (credit sales outstanding at year end)       X
  Cash (closing balance from cash budget)                        X
Total assets                                                     X

Equity (opening equity + budgeted profit − drawings/dividends)  X
Non-current liabilities                                          X
Current liabilities:
  Trade payables (credit purchases outstanding at year end)      X
Total equity and liabilities                                     X

Key linkages

Important note

The budgeted SFP must balance — total assets = total equity + liabilities. If it does not, a figure has been double-counted or omitted.