A budget is a statement, which shows forecasts of the financial activities of a business to achieve a specific purpose. A budget is basically an estimate of receipts and payments of revenue and capital items in future.

Master budget (also known as summary budget or finalised profit plan) combines all the budgets for a period into one harmonious unit and thus, it show the overall budget plan. As profit planning is the main objective of a budget program, it is but natural that all the subsidiary budgets should be co-ordinated and projected into a master or summary budget, which should show the final projected results of the plan. The master budget incorporates all the subsidiary functional budgets and the budgeted Profit and Loss Account and Balance Sheet. Before the budget plan is put into operation, the master budget is considered by the top management and revised if the -position of profit disclosed therein is not found to be satisfactory. After suitable revision is made, the master budget is finally approved and put into action.

Another view regards the budgeted Profit and Loss Account and the Balance Sheet as the master budget. The Profit and Loss Account is built up from the other budgets already set, and no fresh estimates are necessary. The budgeted cost of production is deducted from the budgeted sales revenue in order to arrive at the budgeted gross profit. The operating profit is obtained by further deduction of the budgeted selling and distribution expenses. Addition and subtraction of other budgeted income and expenditure items give the budgeted net profit.

The advantages of a forecast Profit and Loss Account are as follows:

(1) It presents an overall projected profit position of the concern.
(2) It enables the planning and control of the profits of the business.
(3) It enables the investigation of causes for variances.
(4) The accuracy of all the budgets is automatically checked.

The preparation of forecast Balance Sheet also is simple. This is prepared on the basis of the last Balance Sheet, wherein all forecast changes of assets and liabilities are included. The advantages of the forecast Balance Sheet are as follows:

1. It reveals the overall financial position of the concern so that management may take action to improve it. The various forecast Balance Sheet ratios would be of assistance to the management in assessing the position.
2. It enables a check to be exercised on the other budgets.
3. The budgeted return on capital employed may be determined.

Necessary changes may be ptade if the return is not considered to be

Forecast Profit and Loss Account

Forecast Balance Sheet

Financial budget is a summary statement for the future that shows the estimated requirements of cash inflow and outflow.

According to Walker, " A financial budget is a comparison of estimated cash inflows and outflows for particular period i.e. a month, a quarter or year."

According to Guttman and Dougal, " financial budget is an estimate of cash receipts and disbursements for a future period of time."

Utility and Significance of Cash Budget

1. Financial budget helps in planning of cash requirements that a business need over a period of time.
2. Financial budget helps in keeping a check on the execution of the management policies.
3. Financial budget helps to know whether cash expenditure items can be financed internally or not.
4. Financial budget reveals shortage of cash so that it can be arranged by overdraft.
5. Financial budget also enables the management to ascertain the possibility of financing the capital expenditure projects internally.
6. Financial budget helps the management in knowing existing and anticipating cash resources and their utilisation.
7. Financial budget reveals surplus of cash so that it may be invested properly.

A Financial budget may be prepared either of the following three methods:

1. The receipts and payments method
2. The adjusted profit & loss method
3. The balance sheet method

Receipts and Payment Method

Under receipts and payment method estimate of cash receipts and cash payments is worked out during the budgeted period. Estimated cash receipts are added to opening cash balance and estimated cash payments are deducted out of the total. Thus, the closing cash balance is worked out. Estimates regarding sales are indicated by the sales department that also points out the general trend of credit allowed to customers. Purchase department makes forecast about the cash and credit purchases and also points out the period after which the credit purchases are met.

Estimates regarding fixed charges and variable cost are made on the basis of past experience.

Format of Financial Budget

Financial Budget
for the months of --- and --- 20—

The Adjusted Profit & Loss Method: - Financial budget under this method is also known as cash flow statement. This method is useful for long term planning, therefore under this method cash inflow and outflow are estimated for a year.

Balance Sheet Method: - Under this method the business concern prepares a budgeted balance sheet. Cash and Bank Balance (or overdraft) is computed with this budgeted balance sheet. Budgeted

Balance sheet is prepared with all assets items (excluding cash and bank balance) and all liabilities (excluding bank overdraft).

 Utility of Computers

Computers are very helpful for various accounting operation such as invoicing, calculation of wages, maintaining accounts, collection of money from customers, maintaining assets, cahs book, etc. With the help of computer, a business concern can have better control over its operations. Computers may be used for credit control, budgetary control, inventory control, etc.