How to Create a Balance Sheet

Creating Your Forecasted Balance Sheet

After completing your Financial Budgets (step 1), your First Year Forecasted Cash Flow Statement (step 2), and your First Year Forecasted Income Statement (step 3), the next step is to develop your First Year Forecasted Balance Sheet (remember to create your forecasted financial statements one year at a time).

Recall from previous discussions, the Balance Sheet is a statement used to determine the financial strength and weakness of a business. It consists of four main components, namely; The Heading, Assets, Liabilities, and Equity. The Heading depicts the name of the company, the name of the statement and the date at which the account balances apply. Assets are items that have economic value to a company. Liabilities are items that have an economic burden on the company - usually items a business owes to other businesses. Equity consists of all the investments made into a company over the years - usually in the form of capital for sole proprietors & partnerships OR shareholder's investments & retained earnings for incorporated companies .

Below summaries the Budgets and Forecasted Financial Statements that need to be completed before you can develop your Forecasted Balance Sheet(s). Following this summary is Murray's 200X and 200Y Forecasted Balance Sheet (IE Scholarship Information Services).

Budget or Statement Name Required to Determine Your Forecasted
Forecasted Cash Flow Statements Cash Balance at the end of each Business Year
Sales Budget Accounts Receivable in Dollars
Ending Inventory Budget Ending Inventory in Dollars
Fixed Asset Budget Current Market Value of each Fixed Asset
Purchase Budget Accounts Payable on Purchases
Income Tax Budget Amount Owed for Income Taxes
Forecasted Income Statement Capital or Retained Earnings Account Balance
Drawings/Dividends Budget Capital or Retained Earnings Account Balance
Opening Balance Sheet Capital or Retained Earnings Account Balance
Opening Balance Sheet Opening Balance Sheet (far left column)

 

SCHOLARSHIP INFORMATION SERVICES
FORECASTED BALANCE SHEET
AS OF DECEMBER 31, 200X AND 200Y

Opening
JULY 1
200X
Ending
DEC 31
200X
Ending
DEC 31
200Y
CURRENT ASSETS:
Cash $7,500 $10,373 $24,905
Accounts Receivable $ 0 $ 0 $ 0
Ending Inventory $ 0 $ 2,592 $ 3,564
Total Current Assets $7,500 $12,965 $28,469

FIXED ASSETS:
Automobile: $6,000 $6,000 $6,000
Less:  Accumulated Deprecation $ 0 $1,000 $3,000
Estimated Market Value - Auto $6,000 $5,000 $3,000




Office Equipment: $3,900 $8,400 $9,600
Less:  Accumulated Deprecation $ 0 $1,400 $4,600
Estimated Market Value - Office Equipment $3,900 $7,000 $5,000
Total Fixed Assets $9,900 $12,000 $8,000

TOTAL ASSETS $17,400 $24,965 $36,469

LIABILITIES:
Current Liabilities:
Accounts Payable on Purchases $ 0 $2,736 $3,828
Income Taxes Payable $ 0 $2,349 $7,428
Total Current Liabilities $ 0 $5,085 $11,256
Long Term Liabilities $ 0 $ 0 $ 0

TOTAL LIABILITIES $ 0 $5,085 $11,256

EQUITY:
Capital - Murray Wilson $17,400 $19,880 $25,213
Total Equity $17,400 $19,880 $25,213


TOTAL LIABILITIES & EQUITY $17,400 $24,965 $36,469

 

The first column entitled "Opening July 1, 200X" has been taken from Budget 12, entitled "Developing Your Opening Balance Sheet". Moreover, this column lists the company's expected Assets, Liabilities and Equity on July 1, 200X.

The second column entitled "December 31, 200X" lists the company's Forecasted Assets, Liabilities and Equity on December 31, 200X. In other words, this represents Murray's 200X Forecasted Balance Sheet. Murray would have used several Budgets (illustrated above), his 200X Forecasted Cash Flow Statement and 200X his Forecasted Income Statement in order to develop his 200X Forecasted Balance Sheet.

The third column entitled "December 31, 200Y" lists the company's Forecasted Assets, Liabilities and Equity on December 31, 200Y. In other words, this represents Murray's 200Y Forecasted Balance Sheet. Before Murray could develop his 200Y Forecasted Balance Sheet, however, he would have had to complete all forecasted statements and analysis for 200X, his 200Y Forecasted Cash Flow Statement, and his 200Y Forecasted Income Statement.

When all Forecasted Balance Sheets have been developed, they can be placed into columns on one single page (as illustrated above).

PLEASE NOTE:
Make sure your TOTAL ASSETS equal the sum of your TOTAL LIABILITIES and TOTAL EQUITY. If they DO NOT equal, then your Forecasted Balance Sheet is NOT in "Balance" and therefore, must be recalculated. Below proves that Murray's Total Assets equal the sum of his Total Liabilities and Total Equity.

Opening
JULY 1
200X
Ending
DEC 31
200X
Ending
DEC 31
200Y
TOTAL ASSETS $17,400 $24,965 $36,469
TOTAL LIABILITIES & EQUITY $17,400 $24,965 $36,469
DIFFERENCE IN BALANCE $0.00 $0.00 $0.00

 

ADDITIONAL EXAMPLES ON FORECASTED BALANCE SHEETS

J&B Incorporated
The Internet Company
The Maple Syrup Company

 

For additional information, please refer to the section entitled "The Balance Sheet".

Categories: Forecasting