Question

What is the budgeting cycle and master budget? Why should companies use a master budget?

Answer 1

Budgeting cycle:- the budget cycle refer to the life of a budget from creation to evaluation. Although small businesses might not use the term “budget cycle,” they use the process when they painstakingly work through the steps required to build and implement a budget. The budgeting process progresses in stages as plans are made, funds are allocated and new information leads to revisions. The four segments of the budget cycle preparation and submission, approval, execution and audit and evaluation provide the framework for creating one of the most important tools a business needs to succeed.

Master budget:- The master budget is basically management’s strategic plan for the future of the company. Every aspect of the company operations is charted and documented for future predictions.

You can almost think of the master budget as a folder that includes all of the other budgets including:-

1 sales budget

2 production budget

3 selling budget

Companies should use master budget because is following reason:-

one of the main reasons for a master budget is to give the business owner or company executives an overview of the company’s budget. Since smaller budgets for each department only cover the expenses and earnings for each individual area of the business, you'd have to add up all of those departments' budgets to see the overall earnings and spending of the company.

Another reason is a master budget is the ability to identify problems and plan ahead.