Guillermo Budget

The master budget is often known as a outline of a company's plans that sets detailed goals for an organization regarding sales, production, distribution, and financing.   The master budget is the major financial document which also provides the basic information for a customary financial control structure.   Another purpose of the master budget is to provide a communication tool in which the company’s employees can observe how their hard work affects the company’s overall goals.   When the budget is being met, it lends to improve the moral of the employees.   When employees have access to the budget, they can see firsthand how their efforts have a direct impact on the organization.   This can also provide insight to upper management as well. If in any given time period, management can see whether or not the employees are meeting their goals set forth in the budget and take corrective action before the problem escalates.  
Budgeting entails a great deal of forecasting which brings a fair amount of uncertainly into the equation.   This is particularly true when forecasting revenue. A sales forecast is a prediction of sales based on previous sales performance to develop an analysis of market conditions. (Adler 2009)   Using past data for current results may put the company at a disadvantage.   Although forecasting may not always be accurate, it gives the company a sneak preview of what they can expect in the near future.   Using a sales forecast for long and short term planning has its risks, and the most significant risk of sales forecasts is that of unethical decision making.   For example, if budgets are used as a tool for employee performance evaluations, than the budgets may be exaggerated to show in favor of the employee.   Managers who do not perform as expected or fall short of their goals, can simply manipulate what they report to upper management to match more closely make what was expected of them.   When this occurs, it is considered budget padding.   This term...