From the course: Financial Accounting Part 2

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Forecasted assets

Forecasted assets

From the course: Financial Accounting Part 2

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Forecasted assets

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- Let's start with our forecasted balance sheet by forecasting next year what assets we'll need. Remember that our sales are forecasted to go up by 20%. Now, are we going to need more cash? Well, if our volume of transactions increase by 20%, do we need more cash on hand? Do we need more cash in the bank? Do we need more cash available to pay payrolls to our employees? Do we need more cash available to pay our suppliers and to pay for everything? Sure we do. But how much more? Well, as a first approximation, if sales go up by 20%, our need for cash is also going to go up by about 20%. Business gets bigger, we just need more cash. Last year, the amount of cash we needed was $10. Next year, the required cash amount should increase by about 20%. We'll need $12 in cash. Next, let's consider inventory. If our sales are going to go up, we will need more inventory. We are going to have to have more inventory for our…

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