March 1, 2010
Organization and planning are important elements of starting and maintaining any successful business. Learning from experiences in business transactions and seeking to acquire knowledge from current as well as future endeavors aid a business in succeeding. Learning and understanding a budget is a good quality to master because it can give insight to managers regarding the health of the company. Few people every dreamed of growing up to excel in the art of budgeting. Regardless of the reason people become managers, making a master budget is a part of the planning process for a business.
Pieces of a Puzzle
A master budget is comprised of several parts combined to form the master budget. The main parts of the master budget consist of the operational and financial budget. It is within these two parts that most if not all of the information needed to form a master budget of a company exist. Master budgets seek to outline a plan for the future in the upcoming year or quarter for the company's finances. "The master budget is a detailed and comprehensive analysis of the first year of the long range plan", (Horngren, et. al., 2008, p. 304). The year review of the master budget takes the components of the operational and financial budgets and break down the important information contained within each.
Fitting the Pieces Together
Elements of the operational and financial budget interact and affect each other; changes in one will cause changes to occur for within the other. The operational budget consists of the sales, operating expense, along with the purchases and cost-to-goods-sold budgets to form a budgeted income statement. The operational budget assist the manager in planning with purchases and expenses of materials along with labor cost required to maintain the company. The financial budget's primary elements consist of the cash budget along with the...