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Definition of Budgeting
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A budget is a detailed plan for the acquisition and use of financial and other resources over a specified time. It represents a plan expressed in formal quantitative terms.
The master budget is a summary of all phases of a company's plans and goals for the future. It sets specific targets for sales, production, distribution, and financing activities. In short, it represents a comprehensive expression of management's plans and how these plans could be accomplished.
The budget should be used as a positive instrument to assist in:
- Establishing goals
- Measuring operating results
- Isolating areas that need extra effort or attention
A budgeting programme will ensure employment involvement over an extended period. The administration of a budget programme requires a great deal of insight and sensitivity on the part of management. The management’s objective must be to develop the realisation that the budget is designed to be a positive aid in achieving both individual and company goals.
Management must keep in mind that the human factor in budgeting is of key importance. It is easy for a manager to become so preoccupied with the technical aspects of the budget programme to allow the exclusion of the human aspects. Management should remember that the purposes of the budget are to motivate employees and to coordinate efforts.