flow statement) to evaluate whether the planned activities of the company are likely to result in an annual report that will be acceptable to the company's shareholders.

The Master Budget

All these budgets are linked together (in practice using a computer spreadsheet model) to produce a 'master budget' of interdependent subsidiary budget statements. During this process a considerable amount of information is gathered and integrated from throughout the company, and many logical inconsistencies or constraints are likely to have come to light and been resolved. For instance, the sales budget may have exceeded the available production capacity which might have led to the inclusion of an investment in additional machinery in the capital budget,

and additional labour, maintenance and depreciation costs, in the manufacturing cost budget. This might have signalled a need to make special arrangements to finance the expenditure on this machinery through the cash budget. In this way the budgetary process provides an important basis for communication throughout the company, coordination of diverse aspects of the company's operations, and highlights important areas where decisions must be taken which affect many interrelated parts of the company.