Final answer:
The financial planning method based on projected sales levels that determines changes in balance sheet and income statement account values is known as sales forecasting or pro forma forecasting. Sales forecasting plays a crucial role in outlining future financial needs and estimating the potential performance of a company.
Step-by-step explanation:
The financial planning method that uses the projected sales level as the basis for determining changes in the balance sheet and income statement account values is known as sales forecasting or pro forma forecasting. This method allows firms to estimate future financial needs and performance by projecting the sales level and then estimating how this will affect various balance sheet and income statement accounts. A graphical representation of the balance sheet, commonly referred to as a T-account, helps visualize the impact of these projections on assets and liabilities.
Since firms make decisions that involve investment in assets today with the expectation of earning profits in the future, getting the financial planning right is crucial. To finance these investments, companies might resort to a variety of financial capital sources including early-stage investors, reinvestment of profits, loans from banks or bonds, or issuing stock. By using a sales-based approach to forecast future balance sheets and income statement figures, companies can tie their financial planning more directly to their business operations and market expectations.