Budgets are usually used to evaluate
performance after the fact, using a process known as variance analysis. Since
some costs are variable with respect to output and some are fixed, changes in
output will automatically lead to increases/decreases in costs absent any input
from managers. Since static budgets reflect planned output rather than actual
output, they are not a good basis of comparison to actual costs.
Budgeted Balance Sheet
Budgeted balance sheet - a
statement of budgeted financial position.
The ending balance in a given account
equals the beginning balance plus any estimated change.
The cash budget provides the ending
cash balance on the balance sheet.
Budgeted Income Statement
The budgeted income statement is
easily generated using information from the previous budgets.
To complete the computation of net
income, an estimate must be made of tax expense.
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