From the course: Financial Accounting Part 2

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Forecasted liabilities and equity

Forecasted liabilities and equity

From the course: Financial Accounting Part 2

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Forecasted liabilities and equity

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- If we need $792 in assets, then our total liabilities and equities have to add up to $792. Where's that $792 going to come from? If sales go up by 20%, our purchases should also go up by about 20%. And so our accounts payable balance should also naturally increase by 20%, from $100 to $120. Now, we already computed that our retained earnings will be $98 at the end of next year. We already assumed that our loans payable are going to be $300. So the only thing left is, how much is paid-in capital going to be? $120 plus $300 plus something plus $98 is going to be $792. That something, the plug number here, is $274. That's what my forecasted paid-in capital is for next year. Now, we can stop and say, "Wait a second. I made some simple assumptions. I assumed that my sales were going to go up by 20%. I assumed that I could do that with no new increase in property plant and equipment. I assumed that I could do that…

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