The master budget
The term” budget” is actually a shorthand term to, describe a variety of budget documents. All of these documents are combined into a master budget. The master budget is s set of interrelated budgets that constitutes a plan of action for a specified time period. The individual budgets in a master budget are pictured in illustration 6-2.
As the illustration shows, the master budget contains two classes of budgets. Operating budgets are the individual budgets that result in the preparation of the budgeted income statement. These budgets establish goals for the company’s sales and production personnel. In contrast, financial budgets are the capital expenditure budget, the cash budget, and the budgeted balance sheet. These budgets focus primarily on the cash resources needed to expected operations and planned capital expenditures.