Questions: Which of the following statements is true? The master budget may be prepared in any order. The first step in preparing the master budget is a budgeted balance sheet. Understanding the interrelationships of individual budgets is the key to developing a master budget. Most components of a master budget stand on their own.

The answer is the third one: Understanding the interrelationships of individual budgets is the key to developing a master budget.

Explanation for each option:

1. The master budget may be prepared in any order.
   This statement is incorrect. The master budget is typically prepared in a specific sequence because the output of one budget often serves as the input for another. For example, the sales budget is usually prepared first because it influences many other budgets, such as the production and cash budgets.

2. The first step in preparing the master budget is a budgeted balance sheet.
   This statement is incorrect. The budgeted balance sheet is one of the last components prepared in the master budget process. It is derived from other budgets, such as the sales, production, and cash budgets, which are prepared earlier.

3. Understanding the interrelationships of individual budgets is the key to developing a master budget.
   This statement is correct. The master budget is a comprehensive financial planning document that integrates various individual budgets. Understanding how these budgets interrelate is crucial for accurate and effective budget preparation.

4. Most components of a master budget stand on their own.
   This statement is incorrect. Most components of a master budget are interdependent. For example, the production budget depends on the sales budget, and the cash budget depends on both the sales and production budgets.

In summary, the key to developing a master budget is understanding the interrelationships of individual budgets, as they are interconnected and influence one another.