Illustrating the Master Budget Relationships

Below is a diagram showing the master budget components and how they are

interrelated to each other.

 

The master budget is a comprehensive set of budgets that covers all phases of an
organization’s planned activities for a specific period of time. It has two components
which are the operating budget and the financial budget. The operating budget includes
the expected sales, production budget which are raw materials, direct labor, &
manufacturing overhead, also selling and administrative expenses. When they all
combine, it will form a Budgeted Income Statement where the expected net operating
income of management will show. On the other hand, is the financial budget where it
consists of budgeted cash receipts, budgeted cash payments, capital expenditures
budget. And when they all combine, it will form a Budgeted Balance Sheet where the
expected balance of assets, liabilities, and equity of the company at the end of the period
will show. In conclusion, the diagram above shows the relationship between the
operating budget and the financial budget. Where the sales budget and expenses
budget should be tallied to the assets, liabilities, and equity.