Question

Considering the budgets of a manufacturing firm, which of the following statements is false? 

The budgeted balance sheet must be prepared before the cash budget. 

The production budget must be prepared before direct materials purchase budget. 

The sales budget must be prepared before the cash budget 

The budgeted income statement must be prepared before the budgeted balance sheet.

Answer 1

Based on the question above, the correct answer is Option A - The Budgeted balance sheet must be prepared before the cash budget.

Option A is correct. The budgeted balance sheet is based on the inputs received from various other operating budgets, cash flow statement and income statement. The budgeted balance sheet is the last step in the Budgeting process. As such, this statement is not true and hence is the answer for the question.

Option B is incorrect. It is true that the production budget is prepared before the direct materials purchase budget. Production budget gives data on the number of units that are required to be produced based on which the materials purchase budget is prepared.

Option C is incorrect. The sales budget, which is a part of the operating budgets are prepared before the cash budget of the company. As such, this statement is true.

Option D is incorrect. The Budgeted income statement is prepared before the budgeted balance sheet. This statement is true, as the budgeted balance sheet is the last step in the budgeting process.