Werner Seebacher - Management Accounting. Workbook 2

Budgeted Balance Sheet

The same as a balance sheet, a budgeted balance sheet is a point in time-oriented consideration of an enterprise.

The budgeted balance sheet presents the assets an enterprise has planned to have available at the end of a planned year, as well as how the enterprise will be financed at this point in time, through either equity capital or debt capital/liabilities, respectively.

Figure 7: Budgeted Balance Sheet

On the left side of the balance sheet or budgeted balance sheet respectively, the assets side, the assets of an enterprise are presented, structured in fixed assets and current assets. On the right side of the balance sheet, the liabilities side, the source of the financial means of the enterprise is presented; equity capital and debt capital/liabilities are differentiated.

Ordering the presentation or structure of the balance sheet items on both sides of the balance sheet in the Continental-European Accounting is done usually starting with items bound in a long term perspective (fixed assets, equity capital) leading to the short-term items or the items that are changeable at short notice (cash, short-term bank account, short-term liabilities).

In contrast to this order, in Anglo-American or International Accounting respectively, the balance sheet items such as fixed assets and current assets as well as equity capital and debt capital are presented the other way round – beginning with the items that are bound for a short-term in the enterprise (cash, short-term bank accounts or short-term liabilities respectively) followed by the long-term items in the enterprise (fixed assets or equity capital respectively).

This different structuring of the balance sheet as well as the possibly differing structure of the finance plan have no effect on the fundamental connections between finance plan and budgeted balance sheet.

Finance Plan | Budgeted Balance Sheet

Under consideration of the items presented in the finance plan – based on the opening balance sheet at the beginning of the planned year – the budgeted balance sheet for the end of the planned year is derived. Each item presented in the finance plan changes one item in the balance sheet from the opening balance sheet towards the budgeted balance sheet.

Figure 8: Opening Balance Sheet, Finance Plan and Budgeted Balance Sheet

The opening balance sheet shows the balance sheet at the beginning of the planned year, it contains only stock values.

The finance plan shows the planned changes affecting the liquidity of an enterprise in the course of the planned year, it contains only changing values.

The budgeted balance sheet, however, shows the (planned) balance sheet at the end of the planned year, it comprises stock values again.

In the context between opening balance sheet, finance plan and budgeted balance sheet, the following rule applies:

Each figure from the finance plan changes one item in the balance sheet from the opening balance sheet towards the budgeted balance sheet. Every single figure which is presented in the finance plan must have an effect on the balance sheet.

A balance sheet item, however, can only change from the beginning of the business year or planned year respectively, to the end of the business year or planned year, if this change is also included or presented in the finance plan.

Like that, the finance plan presents exactly the difference between the individual items of the opening balance sheet and the budgeted balance sheet

Profit Plan | Finance Plan | Budgeted Balance Sheet – THE Big Picture

A comprehensive planning system, consisting of the components profit plan, finance plan and budgeted balance sheet, is based on the connection between profit plan and finance plan on the one hand, and the connection between opening balance sheet, finance plan and budgeted balance sheet on the other hand.

By combining the two connections profit plan | finance plan as well as opening balance sheet | finance plan | budgeted balance sheet, the “Big Picture” as an overall system can be presented.

For compiling the overall system, the two connections described in detail between profit plan and finance plan as well as between opening balance sheet, finance plan and budgeted balance sheet are linked with each other.

Like that, the combination of an only to period in time-referring presentation in profit plan and finance plan (considering the development of profit and liquidity in the course of time) arises with a point in time / period in time / point in time-referring presentation of opening balance sheet, finance plan and budgeted balance sheet (consideration of balance sheet, liquidity and balance sheet again).

The combination of the two connections described (profit plan | finance plan and opening balance sheet | finance plan | budgeted balance sheet) results in the total, closed planning system, which forms the central “Accounting/Controlling Overall Context” of an enterprise – the Big Picture.

Figure 9: Big Picture

Profit Plan | Finance Plan | Budgeted Balance Sheet – NUMERICAL EXAMPLES

The case studies presented subsequently are to clarify the connection between profit plan, finance plan and budgeted balance sheet.

The numerical examples are based on a simplified balance sheet structure and on a simplified structure of profit plan and finance plan.

The simplified balance sheet structure of the numerical examples contains the following items, according to the definition of the respective example:

Figure 10: Balance Sheet | Budgeted Balance Sheet, Structure for Numerical Examples

In the simplified structure of the profit plan which is used for the numerical examples, five central expense or cost types respectively are used as a basis – material expenses, personnel expenses, depreciation, other expenses and interest paid – they are allocated to fixed or variable costs in the profit plan, according to the criteria of contribution margin costing.

The material expenses are allocated to variable expenses or variable costs respectively, all further expense items such as personnel expenses, depreciation, other expenses and interest paid are allocated to fixed expenses or fixed costs respectively.