What is the Difference Between Master Budget and Cash Budget?

The main difference between a master budget and a cash budget lies in their purpose and scope. Here are the key differences:

• Master Budget:
• A master budget is a comprehensive financial plan that includes all the budgets for a specific period, such as a year or a quarter.
• It outlines the overall financial goals and objectives of the business and consists of various sub-budgets, including operating budgets (sales, production, overhead) and financial budgets (cash, capital expenditure, financing).
• The net result of the master budget is referred to as net profit or net loss.
• Cash Budget:
• A cash budget is a financial plan that projects the inflows and outflows of cash for a specific period.
• Its purpose is to forecast and manage cash inflows and outflows to ensure the business has enough cash to meet its operational needs.
• The net result of the cash budget is referred to as surplus or deficit.

In summary, a master budget is a comprehensive financial plan that encompasses all the budgets for a specific period, while a cash budget focuses on the management of cash inflows and outflows. The cash budget is a component of the master budget, and it helps businesses manage their cash flow effectively by identifying expected cash receipts and payments.

Comparative Table: Master Budget vs Cash Budget

The main difference between a master budget and a cash budget lies in their scope and focus. Here is a comparison table highlighting the key differences between the two:

In summary, a master budget is a comprehensive financial plan that incorporates all aspects of a company's operations, including income statement, balance sheet, and other financial elements. On the other hand, a cash budget focuses on the company's cash flow situation by estimating cash inflows and outflows for a specific period, ensuring the company has enough cash to meet its obligations and avoid cash shortages.