A budget is an estimate prepared for a definite future period either in terms of financial or nonfinancial terms. Budget is prepared for any course of action or business or state or Nation, as a whole. The budget is usually expressed in terms of total volume. A budget can be used for many different purposes, including planning, control, motivation, communication, and goal congruence.

Participation in the Budget Process:

• The budget process begins with the mission statement formulated by the board of directors.
• Senior management translates the mission statement into a strategic plan with measurable, realizable goals. A budget committee/department composed of top management is formed to draft the budget calendar and budget manual.
• The budget committee/department also reviews and approves the departmental budgets submitted by operating managers.
• A budget director’s primary responsibility is to compile the budget and manage the budget process. Middle and lower management receive their budget instructions, draw up their departmental budgets in conformity with the guidelines, and submit them to the budget committee.
• Top-down (authoritative) budgeting is imposed by upper management and therefore has less chance of acceptance by those on whom the budget is imposed.
• Bottom-up (participative) budgeting is characterized by general guidance from the highest levels of management, followed by extensive input from middle and lower management. Because of this level of participation within the company, there is usually a greater chance of acceptance and optimal decision-making.

Time Frames for Budgets
➢ Strategic plans and budgets most concern senior managers and have time frames of up to 10 years or more.
➢ Intermediate plans and budgets most concern middle managers and have time frames of up to 2 years.
➢ Operational plans and budgets most concern lower-level managers and generally have time frames of 1 month to 1 year.

Master Budget
The master budget also called the comprehensive budget or annual profit plan, encompasses the organization’s operating and financial plans for a specified period (ordinarily a year or single operating cycle).

Operating Budget
In the operating budget, the emphasis is on obtaining and using current resources. It contains the
• Sales budget
• Production budget
• Direct materials budget
• Direct labor budget
• Employee fringe benefits budget
• Manufacturing overhead budget
• Ending finished goods inventory budget
• Cost of goods sold budget
• Nonmanufacturing budget

Financial Budget
In the financial budget, the emphasis is on obtaining the funds needed to purchase operating assets. It contains the
• Capital budget
• Projected cash disbursement schedule
• Projected cash collection schedule
• Cash budget
• Pro forma balance sheet
• Pro forma statement of cash flows

Budget Methodologies
➢ Project Budget
➢ Activity-Based Budgeting
➢ Zero-Based Budgeting
➢ Continuous (Rolling) Budgeting