How do the operating and financial budgets combine into a master budget that produces budgeted financial statements?
Explain how the sales, production, expense and cash budgets combine into a master budget, and prepare a budgeted Income Statement and budgeted Balance Sheet
WACE Year 12 Accounting and Finance Unit 4 on the master budget: how the sales, production, expense and cash budgets feed into a budgeted Income Statement and budgeted Balance Sheet, and how the pieces link together for planning.
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What this dot point is asking
SCSA wants you to explain how the component budgets connect and to prepare a budgeted Income Statement and budgeted Balance Sheet from them.
The order of the master budget
Sales is the starting point because almost everything else depends on expected sales volume. Production or purchases follow, then operating expenses, then the cash budget, and finally the two budgeted statements.
How the pieces feed the statements
Budgeted financial statements
The budgeted Income Statement follows the normal format using forecast figures: revenue less cost of sales gives gross profit, less operating expenses gives budgeted profit. The budgeted Balance Sheet takes opening balances and applies the budgeted movements: closing cash from the cash budget, closing receivables from credit sales not yet collected, closing inventory from the purchases plan, and closing equity from opening equity plus budgeted profit less budgeted dividends.