A budget is defined as management's quantitative expression of plans for a forthcoming

period. Budgets are prepared at various levels of an organization. The master budget is
defined as the overall financial plan for the period, which reflects the organization's goals and
objectives.

The master budget includes operating and financial budgets. Operating budgets show the
company's planned sales and operating expenses. Financial budgets reflect financing plans
such as borrowing, leasing, and cash management.

The company's goals and performance objectives are documented in financial terms

Once formulated, these plans are used throughout the year. Monthly performance reports
compare budgeted results with actual results. To control operations, management can
examine the performance reports and take necessary corrective actions.

ROLE OF BUDGETS & BUDGETING

The role that effective budgeting plays in the management of a business is best understood
when it is related to the fundamentals of management. The many existing definitions of
business management can be expressed in terms of five major functions: planning,
organizing, staffing, directing, and controlling.

A budget helps its in the following ways:

1. It brings about efficiency and improvement in the working of the organisation.
2. It is a way of communicating the plans to various units of the organisation. By
establishing the divisional, departmental, sectional budgets, exact responsibilities are
assigned. It thus minimizes the possibilities of buck-passing if the budget figures are
not met.
3. It is a way of motivating managers to achieve the goals set for the units.
4. It serves as a benchmark for controlling on-going operations.
5. It helps in developing a team spirit where participation in budgeting is encouraged.
6. It helps in reducing wastage's and losses by revealing them in time for corrective
action.
7. It serves as a basis for evaluating the performance of managers.
8. It serves as a means of educating the managers.