Elements Of Master Budgeting

Master Budget Elements A master budget is an expectation, or a statement based on sales, volume etc. for an upcoming period (Shim, J. K., & Siegel, J. G. (2012). The master budget contains a pro forma income, a pro forma balance sheets, and a cash budget. Generally, a master budget is a plan or standard at the beginning, but it ends up amounting to a control device that helps to measure plans for management. This also helps management improve future performances. Budgeting can also help with the evaluation of what-if-scenarios with the aid of technology. Management can also alter completed financial budgets if they do not like what they see. These financial budgets include “financial ratios such as liquidity, activity (turnover), leverage,

There are several components that make up a master budget. These components consist of income, expenses, overhead and production, totals, projections and other budget and reports. The income is one of main components of income and it includes sales, interest, dividends, and royalties or other capital gains you earn (Sam Ashe-Edmunds, n.d). The second component that is essential are expenses. Expenses are used to calculate spending areas that can be cut during slow times. Overhead and production are very essential because it can be used to help with pricing and product of a service. Also, the overhead and production can determine the coct directly tied to creating and delivering each service. Totals are essential because it shows an organization how they are doing each month or year. Also, the totals can determine your income and expenses each month to determine the net income or loss each month. Also totals can determine an organizations performance. The projections are important because it is the most helpful in determining how an organization will end up in a year. Generally analyzing a performance within a month is not realistic but analyzing within a year is a better indicator. Projections are the best indicators to determine all forecast. Other budgets and report are because some businesses create budgets with other budgets such as sales, marketing and etc.

In order to create a budget you must have a forecast, there is no way you can forecast after the budget is done. The production volume is important for the next step because you will need to know how much a business is making in order to create a budget. Estimating manufacturing cost and operating expenses is important because it enables the business to know how to create the right budget. The cash flow and the financial effects is important for the next step because it allows the business to know all the flow of cash from all of the steps that were done prior. Formulating the projected statements is meant to be the last step because you need all of the prior steps in order to create an appropriate