Hi. Good to see you again.
This is the last video on the master budget.
In the last session we talked about how to analyze cash behavior,
and to estimate cash during time according to relevant balance sheet items.
There is one thing that we should go
through before proceeding to the balance sheet compilation.
First, let's do a quick overview on the balance sheet.
Look at this illustration here,
to the left of the balance we have the assets of the company.
They are the means to support the operations.
The assets have to be acquired, leased, or outsourced.
Therefore, we need financial means to do it.
And where are the financial items?
At the right side of the balance sheet,
we have the equity which is the part related to the company's owners, the shareholders.
Typically they cash-in the company by acquiring stocks,
and shareholders cash-out the company by receiving dividends.
Now, talking about the liabilities.
They are the third party capital items.
Bank loans and other financial instruments are showed in this sections of the balance.
Liabilities is the section that we should compliment in this video.
What aspects should we talk about?
Those that need to be estimated to support cash analysis during time.
Here is the list of items.
Prepaid expenses, other assets,
income taxes, accrued liabilities,
notes payable, and equity.
Talking about prepaid expenses.
These expenses are paid in advance and eventually
will be charged to expense at some moment during the budgeted period.
The cash outflows occur in different moments compared to the charging to expenses.
So you may need to track them down to adjust the cash balance.
Talking about other assets.
Similarly to the prepaid expenses,
the assets which are aggregated in the other assets may include payroll advances,
accounts receivable from companies officers, and rent deposits.
They tend to be stable during time just like prepaid expenses,
so you can track them manually and adjust
the budget according to the information you compile.
Now, income taxes payable.
The company has tax payable in specific dates.
Therefore, it's recommended to estimate the cash outflows
for these dates and adjust the budget accordingly.
Talking about accrued liabilities.
Unpaid liabilities are common situation for most companies.
We have for example, vacation,
property taxes, and even wages can be in the list.
In this case, we should track them to analyze when they are about to be paid.
You can rely on historical data,
because they tend to repeat the same level year over year,
adjust the budget according to the analysis you have done.
Now talking about notes payable.
It comprises loans and leases.
You have to track them to estimate the cash outflows when they are paid.
Adjust the budget, align to the payment flow.
And then we have equity.
As we saw in the last video,
you can have an equity increase to finance the strategic projects of the company.
So, if an increase in equity has been planned,
you should include it in the balance sheet,
and you also have the retained earnings within the equities.
Eventually, part of it will be used to pay
dividends and this decision should be in the budget.
Now, structuring the balance sheet from joining the items we have discussed.
The outcomes of the analysis are used to compose the balance sheet,
and the structure follows a model close to the actual balance sheet we use to see.
This is the assets section.
Here, we see the source of information to compile the assets in the balance sheets.
Take a look at the table.
This is the liabilities section.
Here, we see the source of information to compile the balance sheet in this section.
Following this structure, you can develop the balance sheet.
The detail step by step of this process is time
consuming and is not in the scope of this course.
Anyway, if you're interested going further in this topic,
I would suggest reading Chapter 27 of the book in the credits lines below,
or reading materials used part of the content of this book,
and also other reference that we include in the materials.
Well, in this video we discussed cash behavior,
financial budgeting, and we talked about compiling the balance sheet components.
We have concluded the master budget discussion,
and also all the budgeting framework in this video.
Thanks for your attention,
please read the materials provided,
and follow through the steps of the course.
Stay tuned. See you soon.