Preparation of the budgeted income statement must precede the budgeted balance sheet in order to provide:
A) An ending balance for budgeted retained earnings.
B) A beginning cash balance.
C) An updated balance for common stock.
D) An estimate of significant planned capital expenditures for new equipment.

Question

Quizplus · Accepted Answer

The budgeted income statement is necessary before preparing the budgeted balance sheet because it provides the net income or loss for the period, which is needed to calculate the ending balance of budgeted retained earnings. Retained earnings are affected by the net income earned during the period, which is added to the beginning retained earnings balance, along with any dividends paid out. The other options (B, C, D) do not directly depend on the budgeted income statement for their initial calculation in the budgeting process.

Preparation of the Budgeted Income Statement Must Precede the Budgeted