Master Budget vs. Cash Budget: What's the Difference?
Edited by Harlon Moss || By Janet White || Published on January 28, 2024
Master budget is a comprehensive financial plan for an entire organization, while a cash budget focuses solely on cash inflows and outflows.
Key Differences
The master budget encompasses all financial aspects of a company, including income, expenses, sales, and capital expenditures. In contrast, the cash budget specifically tracks the company's cash flow, detailing when and how cash is received and spent.
The master budget serves as a roadmap for the company's overall financial strategy and goals, while the cash budget is essential for short-term liquidity management. It ensures that there are sufficient funds for day-to-day operations.
The master budget is usually prepared for a longer period, often a fiscal year, integrating various individual budgets like sales, production, and personnel. On the other hand, the cash budget is typically more short-term, focusing on immediate cash requirements and planning.
In preparing a master budget, companies forecast long-term revenues and expenses, guiding strategic decisions and investments. Conversely, the cash budget is crucial for managing working capital and maintaining solvency by monitoring cash flows closely.
The master budget requires input from various departments and is used for performance evaluation, while the cash budget is primarily a financial tool used by the treasury or finance department to manage cash efficiently.
ADVERTISEMENT
Comparison Chart
Scope
Comprehensive financial plan
Focuses on cash flows
Purpose
Strategic planning and performance evaluation
Liquidity management
Time Frame
Typically annual
Short-term, often monthly or quarterly
Components
Includes various budgets like sales, expenses
Primarily inflows and outflows of cash
Departmental Involvement
Requires input from multiple departments
Mainly used by finance or treasury department
ADVERTISEMENT
Master Budget and Cash Budget Definitions
Master Budget
A comprehensive forecast of a company's financial operations including income, expenses, and investments.
The master budget was adjusted to accommodate the new marketing campaign expenses.
Cash Budget
A financial tool focusing on a company's cash inflows and outflows.
The cash budget showed a surplus, indicating healthy liquidity for the next quarter.
Master Budget
An integrated collection of individual budgets that together represent a company's financial strategy.
The finance team presented the master budget to highlight the resource allocation for different departments.
Cash Budget
A financial forecast highlighting short-term liquidity needs and resources.
The cash budget revealed the need for a temporary overdraft facility during the low season.
Master Budget
A strategic tool for setting financial goals and measuring organizational performance.
The company's performance was evaluated against the targets set in the master budget.
Cash Budget
An estimation of cash receipts and payments over a short-term period.
The finance manager used the cash budget to plan for upcoming loan repayments.
Master Budget
A consolidated financial plan outlining an organization's overall fiscal activities.
The CEO reviewed the master budget to understand the projected revenue growth.
Cash Budget
A plan used by companies to manage cash flow and ensure solvency.
The cash budget was essential in ensuring that the company had enough funds for its day-to-day operations.
Master Budget
A detailed financial framework guiding a company's fiscal decisions over a specific period.
To assess the feasibility of the expansion plan, the master budget was carefully analyzed.
Cash Budget
A tool for tracking and managing a company’s immediate cash requirements.
To avoid a cash crunch, the company relied on its cash budget for accurate cash flow projections.
FAQs
How often is a master budget prepared?
A master budget is typically prepared annually.
What is a master budget?
A master budget is a comprehensive financial plan that includes all aspects of a company's operations over a specific period.
Why is a cash budget crucial for a company?
It helps in managing working capital and ensuring solvency.
Why is a master budget important?
It guides strategic planning and performance evaluation.
Who uses a cash budget?
Primarily the finance or treasury department for liquidity management.
Can a cash budget predict financial challenges?
Yes, it can help foresee and mitigate liquidity issues.
What are the components of a master budget?
It includes sales, production, personnel budgets, and other financial forecasts.
What is a cash budget?
A cash budget focuses on tracking and managing a company's cash inflows and outflows.
Can a cash budget affect business decisions?
Yes, it can influence short-term financial decisions like investments and expenses.
Who is involved in preparing a master budget?
Various departments contribute, including finance, sales, and operations.
How detailed is a cash budget?
It's usually very detailed, tracking cash on a monthly or even weekly basis.
Is the master budget static?
No, it can be revised based on changing business conditions.
Is a cash budget useful for long-term planning?
It's more useful for short-term financial management.
How often should a cash budget be reviewed?
Regularly, often monthly or quarterly, to ensure accuracy.
How does a cash budget support decision-making?
It provides insights into cash availability for operational decisions.
How does a cash budget differ from a master budget?
A cash budget is more focused on short-term cash flows, whereas a master budget is a comprehensive plan for all financial aspects.
Does the master budget include a cash budget?
Yes, a cash budget is a component of the master budget.
Can a master budget change during the year?
Yes, it can be adjusted for unforeseen changes in the business environment.
Do small businesses need a master budget?
Yes, it's beneficial for businesses of all sizes for financial planning.
Is the master budget linked to a company’s strategic goals?
Yes, it aligns financial planning with strategic objectives.
About Author
Written by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
Edited by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
