From the course: Financial Accounting Part 2

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The initial assumptions

The initial assumptions

From the course: Financial Accounting Part 2

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The initial assumptions

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- To understand this process of financial statement forecasting, let's go through an actual example. Now, if you haven't buckled your seatbelt yet, buckle it now because we're going to go through some numbers. Just sit down. We're going to be very systematic with this example of forecasting financial statements. Remember, our objective here is to use the structure of accounting to help us forecast our financing needs for next year. Am I going to need to borrow money? Am I going to need to seek new investment from shareholders? In our simple example, we will assume that in Year Two our sales are going to increase 20% over Year One. In our example, management has made some preliminary decisions. Realize that we're doing all of this at the start of the year, before the year ever begins. We're going to do our forecast on paper first to see if the plan holds together. So these are our preliminary decisions. We're going to…

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