The two forms of budgets used in managerial accounting for planning and control are cash budgets and master budgets.
An explanation of each is given below:
A cash budget is a financial strategy that forecasts a period’s worth of cash inflows and outflows. By analysing the anticipated financial inflows and outflows for a certain time period, it aids organisations in managing their cash flow properly.
For businesses to guarantee they have enough cash to meet their operational and financial obligations, a cash budget is crucial. It includes cash payments for expenses, investments, and debt repayment as well as cash earnings from sales, loans, and investments.
A master budget is a thorough financial plan that combines all of the budgets for a given time period. The plan comprises both operating and financial budgets and specifies the overall financial aims and objectives of the company.
The financial budgets contain cash, capital expenditure, and finance budgets, while the operating budgets include sales, production, and overhead budgets. Businesses can use a master budget as a planning and coordination tool to make sure they are moving towards their long-term financial objectives.
In conclusion, a master budget is a comprehensive financial plan that covers all of the budgets for a certain period, as opposed to a cash budget, which estimates the inflows and outflows of cash for a specific period.
Both budgets are necessary for organisations to efficiently plan and manage their financial activities, but they serve different purposes and have different budgeting focuses.