Question

Which of the following statements is true of budgets?

Financial budgets are at the starting point of the budgeting process.

Operating budgets are prepared independently of the master budget.

Financial budgets are prepared before the master budget is prepared.

Master budgets express management's operating and financial plans.

Answer 1

Solution. The correct answer is option- Master budgets express management's operating and financial plans.

Explanation: An organization operating business needs to prepare budget in order to meet objectives effectively and efficiently. The first option holds false as sales budget represents the starting point of the budgeting process. Operating budget represents day-to-day activities during an accounting period. Master budget represents set of budgets listing sales, production, cash budget etcetera for an organization to plan and control activities effectively to bridge variances to sustain. According to the given question, last option holds true as master budgets encompasses both financial and operating plans of an organization to attain organizational goals and sustain.