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CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements

In forecasting the balance sheet using the projected income statement, which item acts as the balancing figure when assets exceed the sum of liabilities and equity?

The balancing figure is the additional external financing needed, called the plug figure. Once forecast assets, spontaneous liabilities and retained earnings are fixed, the gap between total assets and available financing must be raised externally, such as by borrowing or issuing shares.

  1. ARetained earnings
  2. BAdditional external financing needed (plug figure)Correct
  3. CDepreciation
  4. DTrade payables

Explanation

After forecasting assets, spontaneous liabilities and retained earnings, any shortfall in financing is shown as the plug figure, additional funds needed. Retained earnings come from the income statement and are not a balancing item.

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