Final answer:
The correct order in which most master budgets are prepared is: (c) Sales, purchases, cash, income statement, as the sales forecast is fundamental to planning subsequent areas of the budget.
Step-by-step explanation:
The question relates to the preparation of a master budget, which is a comprehensive financial planning document used by businesses. The most logical sequence in preparing a master budget typically starts with the sales budget, because this will determine many of the subsequent budgets. Once the sales budget is estimated, the company can prepare the purchases or production budget, which is based on the sales forecast plus the desired ending inventory to determine how much needs to be purchased or produced. Following this, the company will prepare the cash budget, which takes into account the cash inflows from sales and the cash outflows from purchases and other expenses. Finally, all this information feeds into the preparation of the income statement, which will show the expected net income for the period based on the budgets prepared.
Therefore, the correct order in which most master budgets are prepared is: (c) Sales, purchases, cash, income statement.