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Definition: Master budget
The master budget is defined as a summary of a company's plans that sets its specific targets for sales, distribution, production and financing activities. It is the total set of budgets, statements, and accounts needed for the operation of a business, including the income statement, the cash flow statement, the balance sheet; and also budgets for operations, finance, sales, production, and other functional divisions of the business. In short, this budget represents a comprehensive expression of the management's future projected plans and how these plans are to be accomplished in terms of the different functional components.
The main advantage of a master budget is that it gives an idea of where a company wants to go and what it has to do in order to get there. It also allows the company to realistically project future cash flows and plan for potential financing.
It usually consists of a number of separate, but interdependent budgets. Following are the major components or parts of master budget and their corresponding inter-relationships: