Budget
Budget is a forward looking set of numbers which projects the future financial performance of a business, and which is useful for evaluating the financial viability of the business’s chosen strategy or deciding whether changes to the overall plan are required.
A budget is a spending plan based on income and expenses. In other words, it estimates how much you’ll make and spend over a certain period, such as a month or year [Nerdwallet].
Budgets have been identified as playing a number of roles which include making goals explicit, coding learning, facilitating co-ordination, promoting accountability, facilitating control, and contracting with external parties . Benefits of budgeting include increasing efficiency through planning and co-ordination, supporting both control and learning through the comparison of actual results with plans, and more globally “the ability to weave together all the disparate threads of an organisation into a comprehensive plan that serves many purposes” .
Properly preparing a budget also serves as a reference to check how well money is being managed during a period by allowing managers to see actual revenues and expenses compared to budgeted revenues and expenses. Corrective action can be taken earlier in a period when revenue shortfalls or expense excesses are identified.
The budget is a microeconomic concept that shows the trade-off made when one good is exchanged for another. In terms of the bottom line—or the result of this trade-off—a surplus budget means profits are anticipated, and a balanced budget means revenues are expected to equal expenses. A deficit budget means expenses will exceed revenues[Investopedia].
⠀ King, R., Clarkson, P. M., Wallace, S. (2010). Budgeting practices and performance in small healthcare businesses. Management Accounting Research, No 21, Pp. 40-55 (p. 41)
⠀ Hansen, S., Otley, D., Van der Stede, W. as cited in King, R., Clarkson, P. M., Wallace, S. (2010). Budgeting practices and performance in small healthcare businesses. Management Accounting Research, No 21, Pp. 40-55 (p. 41)
Ganti, Akhilesh. (2022). What Is a Budget? Plus 10 Budgeting Myths Holding You Back. Investopedia. Retrieved from: https://www.investopedia.com/terms/b/budget.asp
Schwahn, Lauren. (2020). What Is a Budget? Nerdwallet. Retrieved from: https://www.nerdwallet.com/article/finance/what-is-a-budget