When it comes to preparing an operating budget, the first component that is typically prepared is the revenue budget. This budget outlines the expected income from various sources for the upcoming period.
The reason the revenue budget is developed first is that it sets the stage for the rest of the budgetary process. Knowing the anticipated revenues is crucial, as it influences how much can be allocated to the expenses in the subsequent budgets. Once the revenue budget is established, the organization can then prepare the expense budget and the cash budget based on the expected income.
In summary, the revenue budget is foundational in the budgeting process, as it provides essential insights into what resources are available for the organization to operate effectively in the new budget period.