Budgeted Income Statement Definition
The budgeted income statement contains all of the line items found in a normal income statement, except that it is a projection of what the income statement will look like during future budget periods. It is compiled from a number of other budgets, the accuracy of which may vary based on the realism of the inputs to the budget model.
The budgeted income statement is extremely useful for testing whether the projected financial results of a company appear to be reasonable. When used in combination with the budgeted balance sheet, it also reveals scenarios that are not financially supportable (such as requiring large amounts of debt), which management can remedy by altering the underlying budget assumptions.
Example of the Budgeted Income Statement
The following is an example of a budgeted income statement:
Very Large Corporation
Budgeted Income Statement
For the Year Ended December 31, 20XX
|Net sales||Sales budget||$10,000,000|
|Less: cost of goods sold||(Cost in the ending F/G* inventory budget)
x (Sales budget units)
|Less: Selling & admin. expenses||Selling and admin. expense budget||3,250,000|
|Net operating income||250,000|
|Less: interest expense||Financing budget||75,000|
* F/G = Finished goods
Other Budgeted Income Statement Issues
The budgeted income statement works best when presented for all of the budget periods at once, so that you can compare the results for the various periods and spot anomalies that may require additional investigation.
For analysis purposes, the number of line items in a budgeted income statement may be compressed or contracted in comparison to the line items normally used for an actual income statement. Ideally, the line items should be similar, since the budgeted results are typically loaded into the accounting software for each actual income statement line item and then used in budget-versus-actual reports.