Multiple Choice
Which of the following is critical for the final step of preparing closing entries in the accounting cycle?
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3. Accrual Accounting Concepts
Closing Entries
Multiple Choice
Which of the following is the last step in developing the master budget?
A
Preparation of the sales budget
B
Preparation of the budgeted balance sheet
C
Preparation of the cash receipts schedule
D
Preparation of the production budget
Verified step by step guidance1
Understand the concept of a master budget: A master budget is a comprehensive financial planning document that includes various individual budgets, such as sales, production, and cash budgets, culminating in the budgeted financial statements.
Identify the sequence of budgets: The master budget typically starts with the sales budget, as it drives other budgets like production, direct materials, and cash budgets. Each subsequent budget depends on the information provided by the preceding one.
Recognize the role of the budgeted balance sheet: The budgeted balance sheet is the final step in the master budget process. It summarizes the expected financial position of the company at the end of the budget period, incorporating all prior budgets.
Compare the options provided: Preparation of the sales budget is the first step, while preparation of the production budget and cash receipts schedule are intermediate steps. The budgeted balance sheet is the last step in the process.
Conclude that the correct answer is 'Preparation of the budgeted balance sheet,' as it represents the culmination of all prior budgeting activities in the master budget process.
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