The master budget is a detailed and comprehensive analysis of an organization’s long and short term goals.
Identify the major inputs to the master budgets and the usefulness of each. Operational budget and financial budget are the two major parts of the master budget. The financial budget focuses on the income statement and its supporting schedules or, in an organization with no sales revenues, on budgeted expenses and supporting schedules. The financial budget focuses on the effects that the operating budget and other plans such as capital budgets and repayments of debt will have on cash balances.
Additionally, why would a company need to create a master budget? A budget is a major resource to a company because it gives a detailed overview of the finances of the company. The budget answers all the question regarding the revenues and expenses of the company. Its also was to help management to avoid finical problems and make quality decision regarding the finances. 3. What are the advantages and the disadvantages?
Advantages of budgets are:
- Forces management to think ahead of see what they need to reach their goals.
- Budgeting aids managers in communicating objectives and coordinating actions across the organization.
- It is a good tool to evaluate performance of the companies finances and employees.
Disadvantages of budgets are:
- Employees fail to accept responsibility in making a reasonable budget for there department in the company.
- There are strong temptations to lie and cheat in the budget process to get possible bonuses.
- I is very difficult of calculate accurate sales forecasts.
In what ways do the elements of the four financial statements interact with one another? The four financial statements share the same information in certain areas of the statement which leads to better understanding a company’s finances. For example, the income statement explains the net income (revenue-expense) and that number increase the ending retaining earning on the Statement of Retaining Earning Sheet. Furthermore, retaining earning is on the balance sheet which helps determining stockholders equity & total liabilities. The ending cash amount on the statement of cash flows gives the beginning cash balance on the balance sheet. This example show how all the financial statements relate to one another.
How might changing one of the four financial statements affect the other financial statement? If a change occurs on one financial statement is will change all the statements it may increase or decrease the bottom line. For example if expenses increase that would result in net income being lower in income statement and it would defiantly decrease retaining earning. Since the expense increase it will lower the cash on the balance sheet.
Why is it essential to understand the relationship between the financial statements? These statements combine for all the financial decisions and outcomes of a business. I is the same as a personal bank statement, it tell a personal how well the can live depending upon the amount of money in the statement the person will know if they can afford a T-Bone Stake or a Big Mac. It is very important to understand how the information on one financial statement affects all the statements.
