ECONOMICS

Detailed explanation-1: -A master budget is a central planning tool that gives an overview of a business’s finances, outlining cash flow forecasts, financial statements, and the financial plan.

Detailed explanation-2: -The master budget process has two parts–an operating budget and a financial budget–that are themselves made up of a series of smaller budgets. The operating budget consists of projected sales revenue, the cost of goods sold, and all the separate operating expense budgets you’ll be creating.

Detailed explanation-3: -A master budget will show all the details of the company’s income-generating actions via the operating budget, with an overview of revenue and expenses. It will also show cash inflows and outflows from the cash flow statement, and estimations of what will appear on the balance sheet at the end of the accounting period.

Detailed explanation-4: -The major components of a master budget include income and expenses, overhead and production costs, and the monthly, annual, average and projection totals.

Detailed explanation-5: -The starting point of the master budget is the sales budget. The ending point of the master budget is the budgeted financial statements. Since the budgeted financial statements include both an income statement and balance sheet, each step in the master budget has both an income statement and balance sheet component.