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Budgeted statement of profit or loss and statement of financial position

Edexcel IAL Accounting · WAC12 Corporate and Management Accounting

The master budget brings the functional budgets together into a budgeted statement of profit or loss and a budgeted statement of financial position. The key is to remember the accruals concept: the cash budget and the profit statement use different rules.

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Budgeted statement of profit or loss

Revenue: all budgeted sales (cash and credit), from the revenue budget.
Cost of sales: opening inventory + purchases (or production cost) - closing inventory, from the inventory and purchases budgets.
Expenses on an accruals basis, including depreciation and irrecoverable debts, even though they are not in the cash budget.
Capital items (buying a machine, receiving loans or share capital) are not expenses or income.

Budgeted statement of financial position

Non-current assets: opening cost + additions (capital budget) less accumulated depreciation.
Inventory: closing figure from the inventory budget.
Trade receivables and trade payables: closing figures from their budgets.
Cash: closing balance from the cash budget (an overdraft is a current liability).
Equity: opening capital and reserves + new shares + budgeted profit - dividends.
Loans: opening + new loans - repayments.

It must balance: if it does not, a budget figure has been carried incorrectly.

Cash versus profit

Item	Cash budget	Budgeted profit statement
Credit sales made in the last month	Not yet (received next period)	Included in revenue
Depreciation	Never	Included
Purchase of machinery	Included when paid	Only its depreciation
Loan received	Included	Not included (interest is)
Dividend paid	Included	Not an expense (statement of changes in equity)

Worked example

Budgeted revenue is £180,000; cost of sales is 60% of revenue; cash expenses are £31,000 and depreciation is £6,000. Calculate budgeted gross profit and profit for the period.

Cost of sales = 60% x 180,000 = £108,000
Gross profit = 180,000 - 108,000 = £72,000
Profit = 72,000 - 31,000 - 6,000 = £35,000

Answer: Gross profit £72,000; profit £35,000

Key idea: Budgeted profit uses accruals (all sales, depreciation included, no capital items); the budgeted statement of financial position takes closing balances from the inventory, receivables, payables, capital and cash budgets.

Check yourself

Budgeted sales for a quarter: cash sales £22,000 and credit sales £68,000, of which £25,000 will still be unpaid at the end of the quarter. What revenue appears in the budgeted statement of profit or loss?
Show answer
£90000. All sales count: 22,000 + 68,000 = £90,000.
Opening inventory £14,000; budgeted purchases £57,000; closing inventory £16,500. Calculate budgeted cost of sales.
Show answer
£54500. 14,000 + 57,000 - 16,500 = £54,500.
Machinery at cost £80,000 with accumulated depreciation £24,000. A new machine costing £20,000 is bought during the budget period, and depreciation for the period is £10,000. What carrying amount appears in the budgeted statement of financial position?
Show answer
£66000. Cost 100,000 - depreciation 34,000 = £66,000.
Retained earnings at the start £135,000; budgeted profit £42,000; budgeted dividends paid £15,000. What closing retained earnings appear in the budgeted statement of financial position?
Show answer
£162000. 135,000 + 42,000 - 15,000 = £162,000.
Where does the cash figure in the budgeted statement of financial position come from?
- Budgeted profit for the period
- The revenue budget
- The opening cash balance
- The closing balance in the cash budget
Show answer
The closing balance in the cash budget. The cash budget gives the closing cash or overdraft.
Depreciation of £8,000 is budgeted. Where does it appear?
- In the cash budget, not in the budgeted statement of profit or loss
- In the budgeted statement of profit or loss, not in the cash budget
- In the budgeted statement of financial position as a current liability
- In the trade payables budget
Show answer
In the budgeted statement of profit or loss, not in the cash budget. It is an expense (accruals) but not a cash flow.

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Sources

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (XAC11/YAC11), Issue 2

Last updated 8 November 2026. Spotted a mistake? Tell us.