Budget

Budget

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A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics
Microeconomics
Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...

, which uses a budget line to illustrate the trade-offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms.

In summary, the purpose of budgeting is to:
  1. Provide a forecast of revenues and expenditures, that is, construct a model of how our business might perform financially if certain strategies, events and plans are carried out.
  2. Enable the actual financial operation of the business to be measured against the forecast.

Business start-up budget


The process of calculating the costs of starting a small business begins with a list of all necessary purchases including tangible assets (for example, equipment, inventory) and services (for example, remodeling, insurance), working capital
Working capital
Working capital is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is...

, sources and collateral. The budget should contain a narrative explaining how you decided on the amount of this reserve and a description of the expected financial results of business activities. The assets should be valued with each and every cost. All other expenses are like labour factory overhead all freshmen expenses are also included into business budgeting.

Corporate budget


The budget of a company is often compiled annually, but may not be. A finished budget, usually requiring considerable effort, is a plan for the short-term future, typically one year (see budget year). While traditionally the Finance department compiles the company's budget, modern software allows hundreds or even thousands of people in various departments (operations, human resources, IT, etc.) to list their expected revenues and expenses in the final budget.

If the actual figures delivered through the budget period come close to the budget, this suggests that the managers understand their business and have been successfully driving it in the intended direction. On the other hand, if the figures diverge wildly from the budget, this sends an 'out of control' signal, and the share price could suffer as a result.

Event management budget


A budget is a fundamental tool for an event director
Event management
Event management is the application of project management to the creation and development of festivals, events and conferences.Event management involves studying the intricacies of the brand, identifying the target audience, devising the event concept, planning the logistics and coordinating the...

 to predict with reasonable accuracy whether the event will result in a profit, a loss or will break-even. A budget can also be used as a pricing tool
Pricing science
Pricing science is the application of social and business science methods to the problem of setting prices. Methods include economic modeling, statistics, econometrics, mathematical programming...

.

There are two basic approaches or philosophies when it comes to budgeting. One approach focuses on mathematical models, and the other on people.

The first school of thought believes that financial models, if properly constructed, can be used to predict the future. The focus is on variables, inputs and outputs, drivers and the like. Investments of time and money are devoted to perfecting these models, which are typically held in some type of financial spreadsheet application.

The other school of thought holds that it’s not about models, it’s about people. No matter how sophisticated models can get, the best information comes from the people in the business. The focus is therefore in engaging the managers in the business more fully in the budget process, and building accountability for the results. The companies that adhere to this approach have their managers develop their own budgets.
While many companies would say that they do both, in reality the investment of time and money falls squarely in one approach or the other.

Government budget



The budget of a government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

 is a summary or plan of the intended revenues and expenditures of that government.

United States



The federal budget is prepared by the Office of Management and Budget, and submitted to Congress for consideration. Invariably, Congress makes many and substantial changes. Nearly all American states are required to have balanced budget
Balanced budget
A balanced budget is when there is neither a budget deficit or a budget surplus – when revenues equal expenditure – particularly by a government. More generally, it refers to when there is no deficit, but possibly a surplus...

s, but the federal government is allowed to run deficits.

United Kingdom



The budget is prepared by the Treasury under the direction of the Chancellor of the Exchequer. Parliament rarely makes any significant amendments.

India



The budget is prepared by the Budget Division of Department of Economic Affairs of the Ministry of Finance annually. This includes supplementary excess grants and when a proclamation by the President as to failure of Constitutional machinery is in operation in relation to a State or a Union Territory, preparation of the Budget of such State. The railway budget is presented separately.

Personal or family budget



In a personal or family budget all sources of income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...

 (inflows) are identified and expenses (outflows) are planned with the intent of matching outflows to inflows (making ends meet). In consumer theory
Consumer theory
Consumer choice is a theory of microeconomics that relates preferences for consumption goods and services to consumption expenditures and ultimately to consumer demand curves. The link between personal preferences, consumption, and the demand curve is one of the most closely studied relations in...

, the equation restricting an individual or household to spend no more than its total resources is often called the budget constraint
Budget constraint
A budget constraint represents the combinations of goods and services that a consumer can purchase given current prices with his or her income. Consumer theory uses the concepts of a budget constraint and a preference map to analyze consumer choices...

.

Budget types

  • Sales budget – an estimate of future sales, often broken down into both units and dollars. It is used to create company sales goals.
  • Production budget – an estimate of the number of units that must be manufactured to meet the sales goals. The production budget also estimates the various costs involved with manufacturing those units, including labor and material. Created by product oriented companies.
  • Cash flow/cash budget – a prediction of future cash receipts and expenditures for a particular time period. It usually covers a period in the short term future. The cash flow budget helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing.
  • Marketing budget – an estimate of the funds needed for promotion, advertising, and public relations in order to market the product or service.
  • Project budget – a prediction of the costs associated with a particular company project. These costs include labor, materials, and other related expenses. The project budget is often broken down into specific tasks, with task budgets assigned to each.
  • Revenue budget – consists of revenue receipts of government and the expenditure met from these revenues. Tax revenues are made up of taxes and other duties that the government levies.
  • Expenditure budget – includes spending data items.

See also



  • Budget crisis
    Budget crisis
    A budget crisis is an informal name for a situation in which the legislative and the executive in a presidential system deadlock and are unable to pass a budget. In presidential systems, the legislature has the power to pass a budget, but the executive often has a veto in which there are...

  • Budget Day
  • Budget process
    Budget process
    A budget process refers to the process by which governments create and approve a budget, which is as follows:* The Financial Service Department prepares worksheets to assist the department head in preparation of department budget estimates...

  • Budget overrun
  • Budget surplus
  • Budget theory
    Budget theory
    Budget theory is the academic study of political and social motivations behind government and civil society budgeting. Classic theorists in Public Budgeting include Henry Adams, William F. Willoughby, V. O. Key, Jr., and, more recently, Aaron Wildavsky. Notable recent theorists include Baumgartner...

  • List of European countries by budget revenues

  • Government budget by country
    Government budget by country
    This article includes a chart representing revenues, expenditures and resulting deficit or surplus of government budget. The countries are ranked by budget revenues. The data is taken mainly from CIA World Factbook....

  • Canadian federal budget
    Canadian federal budget
    In Canada, federal budgets are presented annually by the Government of Canada to identify planned government spending, expected government revenue, and forecast economic conditions for the upcoming year....

  • Constitutional economics
    Constitutional economics
    Constitutional economics is a research program in economics and constitutionalism that has been described as extending beyond the definition of 'the economic analysis of constitutional law' in explaining the choice "of alternative sets of legal-institutional-constitutional rules that constrain the...

  • Deficit
  • Envelope System
    Envelope System
    The envelope system, also known as the envelope method, is a popular method for visualizing and maintaining a budget. The key idea is to store the cash to meet separate categories of household expenses in physically separate envelopes....

  • Film budgeting
    Film budgeting
    Film budgeting refers to the process by which a line producer, unit production manager or filmmaker prepares a budget for a film production. This document, which could be over 150 pages long, is used to secure financing for the film and lead to pre-production and production of the film. Multiple...

  • Participatory budgeting
    Participatory budgeting
    Participatory budgeting is a process of democratic deliberation and decision-making, and a type of participatory democracy, in which ordinary people decide how to allocate part of a municipal or public budget...

  • Personal finance
    Personal finance
    Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future...


  • Strategic misrepresentation
    Strategic misrepresentation
    "Strategic misrepresentation is the planned, systematic distortion or misstatement of fact—lying—in response to incentives in the budget process...

  • United States budget process
    United States budget process
    The process of creating the budget for the United States government is known as the budget process. The framework used by Congress to formulate the budget was established by the Budget and Accounting Act of 1921, the Congressional Budget and Impoundment Control Act of 1974, and by other budget...

  • Variance analysis (accounting)
  • Zero-based budgeting


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