What is a Master Budget?
Master budget acts as summary budget incorporating its component functional budgets and which is finally approved adopted and employed.
Definition of Master Budget
According to Row land and William H. Harr,
“Master budget is a summary of budget schedule in capsule form made for the purpose of presenting the highlights of budget forecast, in one report”.
It is understood from the above two definitions, it comprises the functional budget summaries as in the form of budgeted profit and loss account and budgeted balance sheet. It is the summary budget as approved and accepted by management.
A summary budget becomes master budget. Hence, the summary budget is considered in many angles and approved with some minor and/or major changes according to the changed conditions. Whenever a summary budget is accepted and approved, it becomes master budget. The master budget is prepared by the budget-committee and gives directions for every operation of an organization.
Advantages of Master Budget
The advantages of master budget are presented below:
1. The functional budgets are given in capsule form.
2. All the functional budgets are available in one report.
3. The functional budgets can be checked with cross verification of information given in the master budget.
4. It gives an overall estimated profit of the organization.
5. It gives information relating to forecast balance sheet.
The master budget is highly useful to top management. The reason is that meaningful information is available in capsule form.