Question

What is master budget and why is budget important for a company?

Answer 1

A master budget is a combination of all lower level budgets of your firm. That is the marketing budget, sales budget, HR budget and budgets belonging to other departments as well. It combines all of these smaller budgets and produces one final budget in total which can be used to evaluate the firm completely.

Budgeted financial statements and budgeted cash flows and all are also included in a master budget.

A budget is very important for a company because that is what the company forsees. A budget is a look into the future. Estimating upcoming income, expenses, projections etc. Making budgets help a company to plan a lot of things accordingly and the company will by all means try to stay as close to the budget as possible during the year.

It is nearly impossible to have an exact estimated budget in place but all companies try and make the budget as close to reality as possible by taking into consideration a lot of different factors.

Hence budgeting is an important function for all companies and they must ensure that it is well experienced staff who are preparing the lower level budgets as well as the master budget. The main reason being that it is on this budget that the company totally relies on.

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