{"id":1089,"date":"2021-04-14T01:02:15","date_gmt":"2021-04-14T01:02:15","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=1089"},"modified":"2021-08-05T03:13:41","modified_gmt":"2021-08-05T03:13:41","slug":"budgeted-balance-sheet","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/chapter\/budgeted-balance-sheet\/","title":{"raw":"Budgeted Balance Sheet","rendered":"Budgeted Balance Sheet"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Prepare a budgeted balance sheet<\/li>\r\n<\/ul>\r\n<\/div>\r\n<img class=\"aligncenter wp-image-1480\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/04\/10160004\/Screen-Shot-2021-05-10-at-8.59.45-AM-300x260.png\" alt=\"A flowchart titled \u201cTypes of Budgets\u201d. The budgeted balance sheet is highlighted in yellow. At the top is the sales budget. The sales budget has two arrows pointing to the production budget and the SG&amp;A budget. The production budget has three arrows pointing to the materials budget, labor budget, and manufacturing overhead budget. Those three budgets are all pointing to the cost of goods sold budget. The sales, production, materials, labor, manufacturing overhead, cost of goods sold, and SG&amp;A budget boxes are all blue and there is a bracket labeling those as the operating budget. Below the operating budget is a horizontal line showing the capital expenditures budget in red on the left, and going to the right from there, an arrow pointing to the cash budget, with another arrow pointing to the budgeted income statement, and a final arrow pointing to the budgeted balance sheet. The cash budget, budgeted income statement, and budgeted balance sheet are all green and there is a bracket labeling those as the financial budget. There are also arrows pointing from the cost of goods sold budget and the SG&amp;A budget to the cash budget.\" width=\"500\" height=\"434\" \/>\r\nPreparing a projected balance sheet, or financial budget, involves analyzing every balance sheet account. The beginning balance for each account is the amount on the balance sheet prepared at the end of the preceding period. Then, managers consider the effects of any planned activities on each account. Many accounts are affected by items appearing in the operating budget and by cash inflows or outflows.\r\n\r\nThe complexities encountered in preparing the financial budget often require the preparation of detailed schedules. These schedules analyze such things as planned accounts receivable collections and balances, planned material purchases, planned inventories, changes in all accounts affected by operating costs, and the amount of federal income taxes payable. Dividend policy, inventory policy, financing policy and constraints, credit policy, and planned capital expenditures also affect the amounts in the financial budget.\r\n\r\nTo prepare a projected balance sheet, we will analyze each balance sheet account starting with cash. First, let\u2019s take a look at GelSoft\u2019s balance sheet as of the close of business for the current year, which will be the starting point for the budget for next year. This will likely also be a projected balance sheet since the budgeting process for next year will begin during the current year.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement\"><caption>GelSoft\r\nBudgeted Balance Sheet<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">Beginning of Year<\/th>\r\n<th class=\"r\" scope=\"col\">End of Year<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">ASSETS<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Assets<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 250,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Receivable<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Raw Materials Inventory<\/td>\r\n<td class=\"r\">275,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Finished Goods Inventory<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 600,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Current Assets<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,625,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"1\">Property, Plant, and Equipment<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Factory Equipment<\/td>\r\n<td class=\"r\">$ \u00a01,800,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Less: Accumulated Depreciation on Factory Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 (400,000)<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>General Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Less: Accumulated Depreciation on General Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 (200,000)<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Property, Plant, and Equipment<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,700,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Assets<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 3,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">LIABILITIES AND OWNERS\u2019 EQUITY<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Liabilities<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Payable<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 300,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Income Taxes Payable<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 20,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Current Liabilities<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 320,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Retained Earnings<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,005,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Owner's Capital Paid In<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2,000,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Equity<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 3,005,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Liabilities and Owner's Equity<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 $\u00a0 3,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nWe will look at each account and determine the new budgeted balances based on the previous schedules.\r\n<h2>Cash<\/h2>\r\nWe can get the ending cash balance from the Ending Cash balance in the cash budget.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Beginning cash<\/td>\r\n<td class=\"r\">$250,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash receipts<\/td>\r\n<td class=\"r\">5,732,022<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash disbursements<\/td>\r\n<td class=\"r\">(4,995,558)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Prior year income taxes<\/td>\r\n<td class=\"r\">(20,000)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Capital acquisitions (assets)<\/td>\r\n<td class=\"r\">-<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Distributions to owners<\/td>\r\n<td class=\"r\">-<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Ending cash balance<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$966,464<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n<h2>Accounts Receivable<\/h2>\r\nThe balance in Accounts Receivable represents credit sales that have not been collected during the year. In our example, this would be 40% of Quarter 4 sales of $1,574,370, which is $629,748 to be collected during the 1st quarter of the next year.\r\n<h2>Inventory<\/h2>\r\nFor a manufacturer like GelSoft, there are two inventory accounts: Raw Materials inventory and Finished Goods inventory. Raw Materials inventory will come from the materials purchases budget using desired ending inventory for quarter 4 or the year multiplied by cost per material. For GelSoft, we projected 11,200 kilograms of materials for ending inventory at $11 per kilo of material = $123,200. For Finished Goods inventory, we will use the desired ending inventory units from the production budget x production cost per unit. For GelSoft, the production cost is $22.48 per unit including direct materials, direct labor, variable and fixed overhead. The ending balance in finished goods inventory is projected to be 16,200 units x $22.48 per unit or $364,176.\r\n\r\nWe can now fill in the current assets portion of the balance sheet:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement\"><caption>GelSoft\r\nBudgeted Balance Sheet<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">Beginning of Year<\/th>\r\n<th class=\"r\" scope=\"col\">End of Year<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">ASSETS<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Assets<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash<\/td>\r\n<td class=\"r\">$ \u00a0 \u00a0 250,000<\/td>\r\n<td class=\"r\">$ \u00a0 966,464<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Receivable<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\r\n<td class=\"r\">629,748<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Raw Materials Inventory<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 275,000<\/td>\r\n<td class=\"r\">123,200<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Finished Goods Inventory<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 600,000<\/td>\r\n<td class=\"r\">364,176<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Current Assets<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,625,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>2,083,588<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n<h2>Property, Plant, and Equipment<\/h2>\r\nThis section will look at the balances from the previous year and add any depreciation and additional purchases for the year. Property, Plant and Equipment (also called Fixed Assets) refers to long term assets used in the business including land, equipment, machinery, buildings, etc. Depreciation is applied to all of these items except for land, which is not depreciated.\r\n\r\nFor GelSoft, at least at this point in the budgeting process, there are no planned purchases or sales of fixed assets.\r\n\r\nHowever, there is $200,000 of depreciation expense in the manufacturing overhead budget, which increases accumulated depreciation. Remember that depreciation expense is the allocated cost of the equipment that spreads the initial expenditure out across the periods for which the equipment is being used in order to better match the cost to the revenue. Likewise, according to the selling and administration expense budget, we had depreciation on the office equipment of $100,000, so we will add this to the existing balance from the previous year to get a new balance of $300,000 ($200,000 prior year + $100,000 current year depreciation).\r\n\r\nThe third component of the master budget is the capital expenditures budget. That budget is based on the long-term decision-making process around buying (and selling) fixed assets and would therefore affect this section. However, we\u2019ll continue to focus on the operating budget for now.\r\n\r\nWe can now fill out the next section of the balance sheet:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement\"><caption>GelSoft\r\nBudgeted Balance Sheet<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">Beginning of Year<\/th>\r\n<th class=\"r\" scope=\"col\">End of Year<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">ASSETS<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Assets<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 250,000<\/td>\r\n<td class=\"r\">$\u00a0 966,464<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Receivable<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\r\n<td class=\"r\">629,748<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Raw Materials Inventory<\/td>\r\n<td class=\"r\">275,000<\/td>\r\n<td class=\"r\">123,200<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Finished Goods Inventory<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 600,000<\/td>\r\n<td class=\"r\">364,176<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Current Assets<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,625,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>2,083,588<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"1\">Property, Plant, and Equipment<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Factory Equipment<\/td>\r\n<td class=\"r\">\u00a01,800,000<\/td>\r\n<td class=\"r\">1,800,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Less: Accumulated Depreciation on Factory Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 (400,000)<\/td>\r\n<td class=\"r\">(600,000)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>General Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\r\n<td class=\"r\">500,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Less: Accumulated Depreciation on General Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 (200,000)<\/td>\r\n<td class=\"r\">(200,000)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Property, Plant, and Equipment<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,700,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>1,400,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Assets<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,483,588<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\n<\/div>\r\n<h2>Current Liabilities<\/h2>\r\nCurrent Liabilities are liabilities we expect to pay in the next year. We determined Accounts Payable when we built the purchases budget (material purchases for a manufacturer or inventory purchase budget for a merchandiser) and the schedule of cash payments.\r\n\r\nGelSoft assumes payments for purchases occur 80% in the quarter of purchase and 20% in the quarter after the purchase. Therefore, the company\u2019s ending accounts payable is Quarter 4 purchases for all goods and services of $1,340,313 x 20% to be paid in the first quarter of next year, which is $268,063.\r\n\r\nIncome taxes are typically paid in the first quarter of the next year. We determined the budgeted income tax amount from the budgeted income statement in the amount of $63,152, and in the cash budget calculation, we included the prior balance of $20,000 as being paid off.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement\"><caption>GelSoft\r\nBudgeted Balance Sheet<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">Beginning of Year<\/th>\r\n<th class=\"r\" scope=\"col\">End of Year<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">ASSETS<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Assets<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 250,000<\/td>\r\n<td class=\"r\">$\u00a0 966,464<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Receivable<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\r\n<td class=\"r\">629,748<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Raw Materials Inventory<\/td>\r\n<td class=\"r\">275,000<\/td>\r\n<td class=\"r\">123,200<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Finished Goods Inventory<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 600,000<\/td>\r\n<td class=\"r\">364,176<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Current Assets<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,625,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>2,083,588<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"1\">Property, Plant, and Equipment<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Factory Equipment<\/td>\r\n<td class=\"r\">\u00a01,800,000<\/td>\r\n<td class=\"r\">1,800,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Less: Accumulated Depreciation on Factory Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 (400,000)<\/td>\r\n<td class=\"r\">(600,000)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>General Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\r\n<td class=\"r\">500,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Less: Accumulated Depreciation on General Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 (200,000)<\/td>\r\n<td class=\"r\">(200,000)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Property, Plant, and Equipment<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,700,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>1,400,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Assets<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,483,588<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"3\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">LIABILITIES AND OWNERS\u2019 EQUITY<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Liabilities<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Payable<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0 300,000<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0268,063<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Income Taxes Payable<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 20,000<\/td>\r\n<td class=\"r\">63,152<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Current Liabilities<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a0\u00a0\u00a0320,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a0\u00a0\u00a0331,215<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<h2>Owners\u2019 Equity<\/h2>\r\nOwners\u2019 Equity goes by various names. For instance, if GelSoft is a corporation where the owners hold shares of stock as evidence of their ownership, this section would be called Stockholders\u2019 Equity and would include common stock and retained earnings. Common stock represents ownership in the company. Retained earnings means the earnings of the company over time minus any dividends paid. If this was a sole-proprietorship, the owner\u2019s investment would probably be called Capital Contributions. For GelSoft, we\u2019ll use generic terms.\r\n\r\nWe know from the basic accounting equation that Assets = Liabilities + Equity. Another way to state this is Assets - Liabilities = Owners\u2019 Equity. Since projected assets are $3,483,588 and projected liabilities are $331,215, we can then surmise that equity will be $3,152,373.\r\n\r\nWe also know that equity is increased by net income and decreased by any owner withdrawals. Assuming there were no owner withdrawals, the complete budgeted balance sheet will look like this:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement\"><caption>GelSoft\r\nBudgeted Balance Sheet<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">Beginning of Year<\/th>\r\n<th class=\"r\" scope=\"col\">End of Year<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">ASSETS<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Assets<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 250,000<\/td>\r\n<td class=\"r\">$\u00a0 966,464<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Receivable<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\r\n<td class=\"r\">629,748<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Raw Materials Inventory<\/td>\r\n<td class=\"r\">275,000<\/td>\r\n<td class=\"r\">123,200<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Finished Goods Inventory<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 600,000<\/td>\r\n<td class=\"r\">364,176<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Current Assets<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,625,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>2,083,588<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"1\">Property, Plant, and Equipment<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Factory Equipment<\/td>\r\n<td class=\"r\">\u00a01,800,000<\/td>\r\n<td class=\"r\">1,800,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Less: Accumulated Depreciation on Factory Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 (400,000)<\/td>\r\n<td class=\"r\">(600,000)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>General Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\r\n<td class=\"r\">500,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Less: Accumulated Depreciation on General Equipment<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 (200,000)<\/td>\r\n<td class=\"r\">(200,000)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Property, Plant, and Equipment<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,700,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>1,400,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Assets<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,483,588<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"3\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">LIABILITIES AND OWNERS\u2019 EQUITY<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Liabilities<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Payable<\/td>\r\n<td class=\"r\">\u00a0\u00a0\u00a0 300,000<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0268,063<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Income Taxes Payable<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 20,000<\/td>\r\n<td class=\"r\">63,152<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Current Liabilities<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0\u00a0\u00a0\u00a0320,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0\u00a0\u00a0\u00a0331,215<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Retained Earnings<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,005,000<\/td>\r\n<td class=\"r\">1,152,373<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Owner's Capital Paid In<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2,000,000<\/td>\r\n<td class=\"r\">2,000,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 Total Equity<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 3,005,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>3,152,373<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Liabilities and Owner's Equity<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,483,588<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\n<\/div>\r\n<h2>One final step and a note<\/h2>\r\nFirst, we can see that retained earnings reconciles to net income with a slight exception. Retained earnings at the beginning of the budget period is $1,005,000 and we project to add $147,354 to that in new earnings; however, back in the cost of goods sold budget, we found we had a $19 error due to the compounding of rounding errors. For instance, if you were to round a unit cost down from $10.551874532... to $10.55, and then applied that rounded amount to a million units, the rounded total cost would be $10,550,000, but the actual cost would be $10,551,874.53, an accumulated rounding error of $1,874.53.\r\n\r\nThe $19 rounding error that haunts us has accumulated over time. For instance, way back in the direct materials budget, we rounded 107,851.40 kilograms of materials to 107,851 which then resulted in a $4.40 overall rounding error on that portion of the budget. In addition, we rounded beginning and ending inventory volumes and other items. None of this is unusual in budgeting and is immaterial, especially since all of our calculations are based on estimates, projections, and forecasts that are fraught with uncertainty. It is an unusual business indeed that comes in right on budget on every line item.\r\n\r\nHowever, these rounding errors can be troublesome when we want everything to add up and to cross-check. As we finalize this budget by reconciling beginning and ending retained earnings, we will simply account for our error as a line item. Beware though: a seemingly small error like this in a complicated budget could represent multiple items that are offsetting each other, but since we have verified all of the other numbers on the balance sheet, and since we have been aware of this discrepancy since we calculated cost of goods sold, we can feel confident that it is just this one, insignificant item, and that trying to go back and change our assumptions to eliminate it would be \u201cstepping over a dollar to pick up a dime\u201d\u2014in other words, the cost of finding the exact source of this error and tracking it down to correct it would exceed any benefit that we got from doing that.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement\"><caption>GelSoft\r\nReconciliation of Retained Earnings<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">Prior Year<\/th>\r\n<th class=\"r\" scope=\"col\">Current Year<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Beginning Retained Earnings<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 875,000<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,005,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net income<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 130,000<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 147,354<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Rounding Error<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 -<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 19<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Ending Retained Earnings<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,005,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,152,373<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nThe preparation of the budgeted balance sheet completes the financial budget.\r\n\r\nNow, check your understanding of the budgeted income statement.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]220607[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Prepare a budgeted balance sheet<\/li>\n<\/ul>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-1480\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/04\/10160004\/Screen-Shot-2021-05-10-at-8.59.45-AM-300x260.png\" alt=\"A flowchart titled \u201cTypes of Budgets\u201d. The budgeted balance sheet is highlighted in yellow. At the top is the sales budget. The sales budget has two arrows pointing to the production budget and the SG&amp;A budget. The production budget has three arrows pointing to the materials budget, labor budget, and manufacturing overhead budget. Those three budgets are all pointing to the cost of goods sold budget. The sales, production, materials, labor, manufacturing overhead, cost of goods sold, and SG&amp;A budget boxes are all blue and there is a bracket labeling those as the operating budget. Below the operating budget is a horizontal line showing the capital expenditures budget in red on the left, and going to the right from there, an arrow pointing to the cash budget, with another arrow pointing to the budgeted income statement, and a final arrow pointing to the budgeted balance sheet. The cash budget, budgeted income statement, and budgeted balance sheet are all green and there is a bracket labeling those as the financial budget. There are also arrows pointing from the cost of goods sold budget and the SG&amp;A budget to the cash budget.\" width=\"500\" height=\"434\" \/><br \/>\nPreparing a projected balance sheet, or financial budget, involves analyzing every balance sheet account. The beginning balance for each account is the amount on the balance sheet prepared at the end of the preceding period. Then, managers consider the effects of any planned activities on each account. Many accounts are affected by items appearing in the operating budget and by cash inflows or outflows.<\/p>\n<p>The complexities encountered in preparing the financial budget often require the preparation of detailed schedules. These schedules analyze such things as planned accounts receivable collections and balances, planned material purchases, planned inventories, changes in all accounts affected by operating costs, and the amount of federal income taxes payable. Dividend policy, inventory policy, financing policy and constraints, credit policy, and planned capital expenditures also affect the amounts in the financial budget.<\/p>\n<p>To prepare a projected balance sheet, we will analyze each balance sheet account starting with cash. First, let\u2019s take a look at GelSoft\u2019s balance sheet as of the close of business for the current year, which will be the starting point for the budget for next year. This will likely also be a projected balance sheet since the budgeting process for next year will begin during the current year.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement\">\n<caption>GelSoft<br \/>\nBudgeted Balance Sheet<\/caption>\n<thead>\n<tr>\n<th scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">Beginning of Year<\/th>\n<th class=\"r\" scope=\"col\">End of Year<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">ASSETS<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Assets<\/td>\n<\/tr>\n<tr>\n<td>Cash<\/td>\n<td class=\"r\">$\u00a0 \u00a0 250,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Accounts Receivable<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Raw Materials Inventory<\/td>\n<td class=\"r\">275,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Finished Goods Inventory<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 600,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Current Assets<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,625,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"1\">Property, Plant, and Equipment<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Factory Equipment<\/td>\n<td class=\"r\">$ \u00a01,800,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Less: Accumulated Depreciation on Factory Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 (400,000)<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>General Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Less: Accumulated Depreciation on General Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 (200,000)<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Property, Plant, and Equipment<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,700,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Total Assets<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 3,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">LIABILITIES AND OWNERS\u2019 EQUITY<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Liabilities<\/td>\n<\/tr>\n<tr>\n<td>Accounts Payable<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 300,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Income Taxes Payable<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 20,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Current Liabilities<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 320,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Retained Earnings<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,005,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Owner&#8217;s Capital Paid In<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2,000,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Equity<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 3,005,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Total Liabilities and Owner&#8217;s Equity<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 $\u00a0 3,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>We will look at each account and determine the new budgeted balances based on the previous schedules.<\/p>\n<h2>Cash<\/h2>\n<p>We can get the ending cash balance from the Ending Cash balance in the cash budget.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Beginning cash<\/td>\n<td class=\"r\">$250,000<\/td>\n<\/tr>\n<tr>\n<td>Cash receipts<\/td>\n<td class=\"r\">5,732,022<\/td>\n<\/tr>\n<tr>\n<td>Cash disbursements<\/td>\n<td class=\"r\">(4,995,558)<\/td>\n<\/tr>\n<tr>\n<td>Prior year income taxes<\/td>\n<td class=\"r\">(20,000)<\/td>\n<\/tr>\n<tr>\n<td>Capital acquisitions (assets)<\/td>\n<td class=\"r\">&#8211;<\/td>\n<\/tr>\n<tr>\n<td>Distributions to owners<\/td>\n<td class=\"r\">&#8211;<\/td>\n<\/tr>\n<tr>\n<td>Ending cash balance<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$966,464<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<h2>Accounts Receivable<\/h2>\n<p>The balance in Accounts Receivable represents credit sales that have not been collected during the year. In our example, this would be 40% of Quarter 4 sales of $1,574,370, which is $629,748 to be collected during the 1st quarter of the next year.<\/p>\n<h2>Inventory<\/h2>\n<p>For a manufacturer like GelSoft, there are two inventory accounts: Raw Materials inventory and Finished Goods inventory. Raw Materials inventory will come from the materials purchases budget using desired ending inventory for quarter 4 or the year multiplied by cost per material. For GelSoft, we projected 11,200 kilograms of materials for ending inventory at $11 per kilo of material = $123,200. For Finished Goods inventory, we will use the desired ending inventory units from the production budget x production cost per unit. For GelSoft, the production cost is $22.48 per unit including direct materials, direct labor, variable and fixed overhead. The ending balance in finished goods inventory is projected to be 16,200 units x $22.48 per unit or $364,176.<\/p>\n<p>We can now fill in the current assets portion of the balance sheet:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement\">\n<caption>GelSoft<br \/>\nBudgeted Balance Sheet<\/caption>\n<thead>\n<tr>\n<th scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">Beginning of Year<\/th>\n<th class=\"r\" scope=\"col\">End of Year<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">ASSETS<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Assets<\/td>\n<\/tr>\n<tr>\n<td>Cash<\/td>\n<td class=\"r\">$ \u00a0 \u00a0 250,000<\/td>\n<td class=\"r\">$ \u00a0 966,464<\/td>\n<\/tr>\n<tr>\n<td>Accounts Receivable<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\n<td class=\"r\">629,748<\/td>\n<\/tr>\n<tr>\n<td>Raw Materials Inventory<\/td>\n<td class=\"r\">\u00a0 \u00a0 275,000<\/td>\n<td class=\"r\">123,200<\/td>\n<\/tr>\n<tr>\n<td>Finished Goods Inventory<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 600,000<\/td>\n<td class=\"r\">364,176<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Current Assets<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,625,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>2,083,588<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<h2>Property, Plant, and Equipment<\/h2>\n<p>This section will look at the balances from the previous year and add any depreciation and additional purchases for the year. Property, Plant and Equipment (also called Fixed Assets) refers to long term assets used in the business including land, equipment, machinery, buildings, etc. Depreciation is applied to all of these items except for land, which is not depreciated.<\/p>\n<p>For GelSoft, at least at this point in the budgeting process, there are no planned purchases or sales of fixed assets.<\/p>\n<p>However, there is $200,000 of depreciation expense in the manufacturing overhead budget, which increases accumulated depreciation. Remember that depreciation expense is the allocated cost of the equipment that spreads the initial expenditure out across the periods for which the equipment is being used in order to better match the cost to the revenue. Likewise, according to the selling and administration expense budget, we had depreciation on the office equipment of $100,000, so we will add this to the existing balance from the previous year to get a new balance of $300,000 ($200,000 prior year + $100,000 current year depreciation).<\/p>\n<p>The third component of the master budget is the capital expenditures budget. That budget is based on the long-term decision-making process around buying (and selling) fixed assets and would therefore affect this section. However, we\u2019ll continue to focus on the operating budget for now.<\/p>\n<p>We can now fill out the next section of the balance sheet:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement\">\n<caption>GelSoft<br \/>\nBudgeted Balance Sheet<\/caption>\n<thead>\n<tr>\n<th scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">Beginning of Year<\/th>\n<th class=\"r\" scope=\"col\">End of Year<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">ASSETS<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Assets<\/td>\n<\/tr>\n<tr>\n<td>Cash<\/td>\n<td class=\"r\">$\u00a0 \u00a0 250,000<\/td>\n<td class=\"r\">$\u00a0 966,464<\/td>\n<\/tr>\n<tr>\n<td>Accounts Receivable<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\n<td class=\"r\">629,748<\/td>\n<\/tr>\n<tr>\n<td>Raw Materials Inventory<\/td>\n<td class=\"r\">275,000<\/td>\n<td class=\"r\">123,200<\/td>\n<\/tr>\n<tr>\n<td>Finished Goods Inventory<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 600,000<\/td>\n<td class=\"r\">364,176<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Current Assets<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,625,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>2,083,588<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"1\">Property, Plant, and Equipment<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Factory Equipment<\/td>\n<td class=\"r\">\u00a01,800,000<\/td>\n<td class=\"r\">1,800,000<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Less: Accumulated Depreciation on Factory Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 (400,000)<\/td>\n<td class=\"r\">(600,000)<\/td>\n<\/tr>\n<tr>\n<td>General Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\n<td class=\"r\">500,000<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Less: Accumulated Depreciation on General Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 (200,000)<\/td>\n<td class=\"r\">(200,000)<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Property, Plant, and Equipment<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,700,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>1,400,000<\/td>\n<\/tr>\n<tr>\n<td>Total Assets<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,483,588<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<\/div>\n<h2>Current Liabilities<\/h2>\n<p>Current Liabilities are liabilities we expect to pay in the next year. We determined Accounts Payable when we built the purchases budget (material purchases for a manufacturer or inventory purchase budget for a merchandiser) and the schedule of cash payments.<\/p>\n<p>GelSoft assumes payments for purchases occur 80% in the quarter of purchase and 20% in the quarter after the purchase. Therefore, the company\u2019s ending accounts payable is Quarter 4 purchases for all goods and services of $1,340,313 x 20% to be paid in the first quarter of next year, which is $268,063.<\/p>\n<p>Income taxes are typically paid in the first quarter of the next year. We determined the budgeted income tax amount from the budgeted income statement in the amount of $63,152, and in the cash budget calculation, we included the prior balance of $20,000 as being paid off.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement\">\n<caption>GelSoft<br \/>\nBudgeted Balance Sheet<\/caption>\n<thead>\n<tr>\n<th scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">Beginning of Year<\/th>\n<th class=\"r\" scope=\"col\">End of Year<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">ASSETS<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Assets<\/td>\n<\/tr>\n<tr>\n<td>Cash<\/td>\n<td class=\"r\">$\u00a0 \u00a0 250,000<\/td>\n<td class=\"r\">$\u00a0 966,464<\/td>\n<\/tr>\n<tr>\n<td>Accounts Receivable<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\n<td class=\"r\">629,748<\/td>\n<\/tr>\n<tr>\n<td>Raw Materials Inventory<\/td>\n<td class=\"r\">275,000<\/td>\n<td class=\"r\">123,200<\/td>\n<\/tr>\n<tr>\n<td>Finished Goods Inventory<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 600,000<\/td>\n<td class=\"r\">364,176<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Current Assets<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,625,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>2,083,588<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"1\">Property, Plant, and Equipment<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Factory Equipment<\/td>\n<td class=\"r\">\u00a01,800,000<\/td>\n<td class=\"r\">1,800,000<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Less: Accumulated Depreciation on Factory Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 (400,000)<\/td>\n<td class=\"r\">(600,000)<\/td>\n<\/tr>\n<tr>\n<td>General Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\n<td class=\"r\">500,000<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Less: Accumulated Depreciation on General Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 (200,000)<\/td>\n<td class=\"r\">(200,000)<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Property, Plant, and Equipment<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,700,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>1,400,000<\/td>\n<\/tr>\n<tr>\n<td>Total Assets<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,483,588<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td colspan=\"3\"><\/td>\n<\/tr>\n<tr>\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">LIABILITIES AND OWNERS\u2019 EQUITY<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Liabilities<\/td>\n<\/tr>\n<tr>\n<td>Accounts Payable<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0 300,000<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0268,063<\/td>\n<\/tr>\n<tr>\n<td>Income Taxes Payable<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 20,000<\/td>\n<td class=\"r\">63,152<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Current Liabilities<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a0\u00a0\u00a0320,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a0\u00a0\u00a0331,215<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<h2>Owners\u2019 Equity<\/h2>\n<p>Owners\u2019 Equity goes by various names. For instance, if GelSoft is a corporation where the owners hold shares of stock as evidence of their ownership, this section would be called Stockholders\u2019 Equity and would include common stock and retained earnings. Common stock represents ownership in the company. Retained earnings means the earnings of the company over time minus any dividends paid. If this was a sole-proprietorship, the owner\u2019s investment would probably be called Capital Contributions. For GelSoft, we\u2019ll use generic terms.<\/p>\n<p>We know from the basic accounting equation that Assets = Liabilities + Equity. Another way to state this is Assets &#8211; Liabilities = Owners\u2019 Equity. Since projected assets are $3,483,588 and projected liabilities are $331,215, we can then surmise that equity will be $3,152,373.<\/p>\n<p>We also know that equity is increased by net income and decreased by any owner withdrawals. Assuming there were no owner withdrawals, the complete budgeted balance sheet will look like this:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement\">\n<caption>GelSoft<br \/>\nBudgeted Balance Sheet<\/caption>\n<thead>\n<tr>\n<th scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">Beginning of Year<\/th>\n<th class=\"r\" scope=\"col\">End of Year<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">ASSETS<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Assets<\/td>\n<\/tr>\n<tr>\n<td>Cash<\/td>\n<td class=\"r\">$\u00a0 \u00a0 250,000<\/td>\n<td class=\"r\">$\u00a0 966,464<\/td>\n<\/tr>\n<tr>\n<td>Accounts Receivable<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\n<td class=\"r\">629,748<\/td>\n<\/tr>\n<tr>\n<td>Raw Materials Inventory<\/td>\n<td class=\"r\">275,000<\/td>\n<td class=\"r\">123,200<\/td>\n<\/tr>\n<tr>\n<td>Finished Goods Inventory<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 600,000<\/td>\n<td class=\"r\">364,176<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Current Assets<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,625,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>2,083,588<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"1\">Property, Plant, and Equipment<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Factory Equipment<\/td>\n<td class=\"r\">\u00a01,800,000<\/td>\n<td class=\"r\">1,800,000<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Less: Accumulated Depreciation on Factory Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 (400,000)<\/td>\n<td class=\"r\">(600,000)<\/td>\n<\/tr>\n<tr>\n<td>General Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 500,000<\/td>\n<td class=\"r\">500,000<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Less: Accumulated Depreciation on General Equipment<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 (200,000)<\/td>\n<td class=\"r\">(200,000)<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Property, Plant, and Equipment<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,700,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>1,400,000<\/td>\n<\/tr>\n<tr>\n<td>Total Assets<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,483,588<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td colspan=\"3\"><\/td>\n<\/tr>\n<tr>\n<td class=\"c\" style=\"font-weight: bold;\" colspan=\"3\">LIABILITIES AND OWNERS\u2019 EQUITY<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight: bold;\" colspan=\"3\">Current Liabilities<\/td>\n<\/tr>\n<tr>\n<td>Accounts Payable<\/td>\n<td class=\"r\">\u00a0\u00a0\u00a0 300,000<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0268,063<\/td>\n<\/tr>\n<tr>\n<td>Income Taxes Payable<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 20,000<\/td>\n<td class=\"r\">63,152<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Current Liabilities<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0\u00a0\u00a0\u00a0320,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0\u00a0\u00a0\u00a0331,215<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Retained Earnings<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,005,000<\/td>\n<td class=\"r\">1,152,373<\/td>\n<\/tr>\n<tr>\n<td>Owner&#8217;s Capital Paid In<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2,000,000<\/td>\n<td class=\"r\">2,000,000<\/td>\n<\/tr>\n<tr>\n<td>\u00a0 Total Equity<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 3,005,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single line<\/span>3,152,373<\/td>\n<\/tr>\n<tr>\n<td>Total Liabilities and Owner&#8217;s Equity<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,325,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>$\u00a0\u00a03,483,588<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<\/div>\n<h2>One final step and a note<\/h2>\n<p>First, we can see that retained earnings reconciles to net income with a slight exception. Retained earnings at the beginning of the budget period is $1,005,000 and we project to add $147,354 to that in new earnings; however, back in the cost of goods sold budget, we found we had a $19 error due to the compounding of rounding errors. For instance, if you were to round a unit cost down from $10.551874532&#8230; to $10.55, and then applied that rounded amount to a million units, the rounded total cost would be $10,550,000, but the actual cost would be $10,551,874.53, an accumulated rounding error of $1,874.53.<\/p>\n<p>The $19 rounding error that haunts us has accumulated over time. For instance, way back in the direct materials budget, we rounded 107,851.40 kilograms of materials to 107,851 which then resulted in a $4.40 overall rounding error on that portion of the budget. In addition, we rounded beginning and ending inventory volumes and other items. None of this is unusual in budgeting and is immaterial, especially since all of our calculations are based on estimates, projections, and forecasts that are fraught with uncertainty. It is an unusual business indeed that comes in right on budget on every line item.<\/p>\n<p>However, these rounding errors can be troublesome when we want everything to add up and to cross-check. As we finalize this budget by reconciling beginning and ending retained earnings, we will simply account for our error as a line item. Beware though: a seemingly small error like this in a complicated budget could represent multiple items that are offsetting each other, but since we have verified all of the other numbers on the balance sheet, and since we have been aware of this discrepancy since we calculated cost of goods sold, we can feel confident that it is just this one, insignificant item, and that trying to go back and change our assumptions to eliminate it would be \u201cstepping over a dollar to pick up a dime\u201d\u2014in other words, the cost of finding the exact source of this error and tracking it down to correct it would exceed any benefit that we got from doing that.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement\">\n<caption>GelSoft<br \/>\nReconciliation of Retained Earnings<\/caption>\n<thead>\n<tr>\n<th scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">Prior Year<\/th>\n<th class=\"r\" scope=\"col\">Current Year<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Beginning Retained Earnings<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 875,000<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,005,000<\/td>\n<\/tr>\n<tr>\n<td>Net income<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 130,000<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 147,354<\/td>\n<\/tr>\n<tr>\n<td>Rounding Error<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 &#8211;<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 19<\/td>\n<\/tr>\n<tr>\n<td>Ending Retained Earnings<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,005,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,152,373<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>The preparation of the budgeted balance sheet completes the financial budget.<\/p>\n<p>Now, check your understanding of the budgeted income statement.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm220607\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=220607&theme=oea&iframe_resize_id=ohm220607\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-1089\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Budgeted Balance Sheet. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":20,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Budgeted Balance Sheet\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen 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