In: Accounting
Post one example using the concept Master budget and apply it to a company or a project.
The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, and also includes budgeted financial statements, a cash forecast, and a financing plan. The master budget is typically presented in either a monthly or quarterly format, and usually covers a company's entire fiscal year. An explanatory text may be included with the master budget, which explains the company's strategic direction, how the master budget will assist in accomplishing specific goals, and the management actions needed to achieve the budget. There may also be a discussion of the headcount changes that are required to achieve the budget.
example of the cash budget:
Alpha Intergalactic
Corporation
Cash Budget
For the Year Ended December 31, 20XX
Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | |
Beginning cash | $100,000 | $98,000 | $95,000 | $38,000 |
+/- Net profit (loss) | +25,000 | +12,000 | +40,000 | +23,000 |
+ Depreciation | +15,000 | +15,000 | +22,000 | +24,000 |
- Capital expenditures | -28,000 | 0 | -80,000 | -35,000 |
+/- Working capital changes | -14,000 | -30,000 | -39,000 | -21,000 |
= Ending cash | $98,000 | $95,000 | $38,000 | $29,000 |
The most difficult item to estimate in the cash budget is the net change in working capital from period to period. During periods of rapid growth, working capital can be a strongly negative number, since the company must invest in more accounts receivable than usual. If the amount of working capital appears to be holding steady despite rapid growth, then it is quite likely that management has built an unrealistic expectation into the budget to be able to collect accounts receivable more quickly than has been the case in the past.