“For which of you desiring to build a tower does not first sit and account the cost whether he has enough to complete it” (Lk. 14:28).
Every rational economic unit has some objectives to attain. Individuals, corporate bodies or governments have objectives to achieve. To achieve their respective objectives, resources have to be made available. Unfortunately nature did not distribute her resources abundantly, whilst objectives and needs are numerous and varied as there are various economic units. But the means (that is resources) to satisfy those needs are very scarce. Thus one has to utilize his available resources effectively in order to realise what one want. To maximize the objective of an economic unit requires that one has to plan.
Planning, therefore is the process of determining the future course of action in order to attain a desired objective or a set goal. A business enterprise may have as its objective the erection of an addition factory in say, seven years time. It therefore draws up a plan to accomplish the task it has set for itself.
Because finance is scarce, thus each year the enterprise has to plan towards the building of the factory. This yearly explain is known as budgeting – a subset of corporate plan.
To a lay man, budget is just an estimate of how to spend money. To the government budget is an estimate of a plan of how resources are going to be supplied and utilized stated a quantitative and monetary terms within a specified period.
To accountant therefore budget is a quantitative statement in financial terms, prepared for a specific period, it may be one year for the realization of enterprise set goals. It is thus a very important decision-making instrument.
A budget is defined as a financial or quantitative statement, prepared and approved prior to a defined period of time, of the policy to be pursued for the purpose of attaining a given objective.
(A budget is the conversion usually by segments and on short range basis of plan into figures, an accounting as it were for the future).
A comprehensive budget is made up of functional or sub- budgets. Some of them are, sales budget, production budget, material purchase budget, factory cost budget, selling and administrative budgets, capital expenditure budget etc.
All these functional budget are summarized and compressed in one budget called the MATER BUDGET.
This is defined as a total debuget in which are packaged in one statement the sale; expenses on production, capital movement on land, equipment and cash budgets of an organization.