The two main components of the master budget are the a. cash budget and the capital budget b. budgeted income statement and the budgeted balance sheet c. operating budget and the financial budget d. purchases budget and the budgeted income statement

correct option is(c)

Explanation: The correct option is (C) operating budget and the financial budget.

First of all a budget is a very handy management decision making tool, which is used by every firm. All firms make budget to see what is the expected forecast of expenses and income for a defined period of time.

A master budget includes cluster of lower level budget produced by a firms various functional areas, and with this also includes budgeted financial statements, also giving cash forecast and helps the management of a company to give direction to the activities of corporation and in checking the performance of various functional responsibility centers.

A master budget includes two main components :-

a) Operating budget - It is a budget which includes all the expenses and income that a firm is expecting over a defined period of time. The main components of this budget includes income, expenses and profit, so basically this budget will tell how much profit a firm will earn over a defined period of time, given the condition that information given regarding income and expenses are correct.

b) Financing budget - this budget tells about how a firm would receive receipts and how it would make payments in a defined period of time. So basically it means the the amount of cash inflow a firm would receive and the cash outflows that would happen because of the payment made by the firm. Main focus here is on the cash budget and budgeted balance sheets.

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