What is the Master Budget?
The master budget holds all the budgets of a business that provide the financial plans to achieve financial and strategic goals of the business.
The components of the master budget are listed above.
The operating budgets are a component of the master budget that contains all the budgets that are related to the production of a product or delivery of a service. For example, a manufacturing business would have specific budgets related to:
- Direct Material
- Direct Labour
- Manufacturing Overheads
This is so that accountants can identify and review the financial performance of specific areas in production.
The financial budgets are all other budgets that are not operating budgets. Financial budgets include the following:
- Cash budget - budget for managing future cash inflows and outflows of the business
- Capital Expenditure Budget - budget for organising future capital expenditures and the finance required for them
- Budgeted income statement - budget that outlines future income, expenses and profit/loss
- Budgeted balance sheet - budget for predicting the business's future assets, liabilities and equity
Components of a Master Budgets