From the course: Financial Modeling and Forecasting Financial Statements
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Easy "plugs": Cash, investments, paid-in capital
From the course: Financial Modeling and Forecasting Financial Statements
Easy "plugs": Cash, investments, paid-in capital
- Here is a look at our first crack at Hahn Company's forecasted balance sheet with the accompanying computation of retained earnings. Here, we have used the $468 paid-in-capital number as the plug figure. This phrase, plug figure, makes this sound like a pure arithmetic exercise. Actually, the insistence that the balance sheet, balance with total assets equaled to total liabilities plus equity, is a very powerful discipling exercise. This constraint makes sure that the plan for next year is internally consistent in that there is a specific plan in place to identify the total sources of financing for all of the assets that will be needed. Without the use of this accounting equation constraint, there is no reason to think that the operating, investing, and financing plans have any chance of fitting together consistently. Ah the beauty of accounting. Let me change this example a little bit so that I can illustrate that there…
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