The operating budget shows revenues and expenses of the company's cash-generating activities.
Operating budgets are always calculated first because information from the operating budget is essential to calculating the overall financial budget. The operating budget includes eight smaller, yet interrelated planning factors: the sales budget, based on the sales forecast; the production schedule; the material purchasing budget; inventory budget; direct labor budget; selling and administrative expenses budget; ending finished goods inventory budget; and the cost of goods sold budget.
The financial budget focuses on the overall financial position of the company, as well as general cash inflow and outflow. The financial budget is an umbrella calculation based on three smaller budgets: the cash budget, the capital spending budget and the budgeted balance sheet. The cash budget typically shows cash inflows and outflows on a monthly basis. The capital spending budget lists larger, fixed assets for the company. The budgeted balance sheet gives the projected ending balances for all accounts if the company's forecasted budget behaviors hold true.