Understanding Budgeted Income Statements
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What Are Budgeted Income Statements?
What Is Included in a Budgeted Income Statement?
Sales COGS Gross Profit (Sales — COGS) Operating Expenses Operating Income (Gross Profit - Operating Income) Interest Expenses Estimated Income Taxes Net Income
Budgeted Income Statement Example
Why Budgeted Income Statements Are Important
Inform and Attract New Investors
Preparing a Budgeted Income Statement
Determine projected net sales. This is the total amount of revenue you expect to bring in from sales (minus any expected returns, discounts, or allowances). You estimate net sales by multiplying the expected number of units sold by price per unit. Estimate the COGS and subtract it from the projected net sales. The COGS includes the direct costs of producing the goods or services that your company sells, such as materials, labor, and overhead costs. You then multiply the expected number of units sold by the cost of production. When you subtract COGS from projected net sales, you get estimated gross margin. Estimate selling and administrative expenses and subtract them from the gross margin. Selling and administrative expenses can include advertising, rent, salaries, and other general and administrative expenses. Estimate interest payments and taxes and subtract them from the remaining number. This provides the estimated net income for the projected period.
Limitations of Budgeted Income Statements
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