Chapter 7. Financial Budget—Balance Sheet

This chapter covers the construction of Napavale's Balance Sheet. Building the Balance Sheet, which provides a view of Napavale's sources and uses of funds, represents the final step in the Master Budget framework. Figure 7.1 highlights the Budgeted Balance Sheet and its relative position in the Master Budget hierarchy.


The budgeted Balance Sheet incorporates components from several different schedules, including the Cash Budget, Accounts Receivable Budget, Inventory Budget, and Income Statement, among several others. While it is not a specific line item or account on the Balance Sheet, I also introduce and discuss the concept of "net working capital" later in this chapter. Net working capital calculations flow directly into the calculation of free cash flows, discussed in Chapter 9.

It is worth noting that a balance sheet offers a tangible representation of the central accounting identity: Assets = Liabilities + Owners' Equity. This equation will always balance; if it does not, there is an error in a calculation underlying the Balance Sheet. In general terms, there are two potential sources of funds for a business: Liabilities or Owners' Equity. Also in general terms, there is one use of funds for a business: Assets. While this book is not intended to cover (and does not cover)accounting concepts, I will try to point out major concepts at the appropriate points, such as the central accounting identity mentioned ...

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