Define operating budgets and financial budgets. List the specific budgets which are operating budgets. List the specific budgets which are financial budgets

What will be an ideal response?

Operating budgets:
1. sales budget
2. production budget
3. direct materials budget
4. direct labor budget
5. manufacturing overhead budget
6. operating expenses budget
7. budgeted income statement

The operating budgets are the budgets the organization uses to run its daily operations. The operating budgets culminate in a budgeted income statement. The starting point of the operating budgets is the sales budget, because it affects most other components of the master budget. After the manager estimates sales, manufacturers prepare the production budget, which determines how many units the organization needs to produce. After the manager establishes the production volume, the manager prepares the budgets to determine the amount of direct material, direct labor, and manufacturing overhead that the organization requires to meet its production demands. Next, a manager prepares the operating expenses budget. After the manager prepares all budgets, the manager has the data to prepare the budgeted income statement.

Financial budgets:
1. capital expenditures budget
2. cash budgets
3. budgeted balance sheet

The financial budgets project the collection and payment of cash, as well as forecast the company's budgeted balance sheet. The capital expenditure budget shows the company's plan to purchase property, plant, and equipment. The cash budget projects the cash that will be available to run the company's operations and the cash budget determines whether the company will have extra funds to invest or whether the company will need to borrow cash to run its operations. Finally, the budgeted balance sheet forecasts the company's position at the end of the budget period.