All 34 The Master Budget questions
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What is a pro forma cash flow statement in the master budget? What is the first budget prepared in the master budget and why? What is a budgeted income statement used for? In what order are the components of the master budget prepared? How does the cash budget fit within the master budget? What is the cost of goods sold budget and how does it link inventory budgets? Why must the budgeted balance sheet balance, and what if it doesn't? What is the relationship between the master budget and responsibility accounting? How does the sales budget flow through to the budgeted balance sheet? What is the difference between the operating cycle and the master budget?
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How is the budgeted income statement prepared?

Intermediate

Answer

The budgeted (pro forma) income statement is built from the operating budgets: budgeted sales revenue less budgeted cost of goods sold (from production/inventory budgets) gives gross profit, less budgeted selling and administrative expenses gives operating profit, then less interest and tax gives budgeted net profit. It shows expected profitability for the period.
Sales 500,000 - COGS 300,000 = GP 200,000 - Opex 120,000 = Op profit 80,000.
Real-world example The budgeted P&L projects an 80,000 operating profit from planned sales and costs.

Common follow-ups: What figures feed COGS? | Where does the budgeted income statement come in the sequence?

Types of Budgets Variance Analysis The Master Budget
All 34 The Master Budget questions