A budget is a

calculation A calculation is a deliberate mathematical process that transforms a plurality of inputs into a singular or plurality of outputs, known also as a result or results. The term is used in a variety of senses, from the very definite arithmetical ...

plan, usually but not always

financial Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

, for a defined period, often one year or a month. A budget may include anticipated

sales Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale. A period during which goods are sold for a reduced price may also be referred ...

volumes and

revenue In accounting, revenue is the total amount of income generated by the sale of product (business), goods and services related to the primary operations of a business. Commercial revenue may also be referred to as sales or as turnover. Some compan ...

s, resource quantities including time,

cost Cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it i ...

s and

expense An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition i ...

s, environmental impacts such as greenhouse gas emissions, other impacts,

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

s, liabilities and

cash flow Cash flow, in general, refers to payments made into or out of a business, project, or financial product. It can also refer more specifically to a real or virtual movement of money. *Cash flow, in its narrow sense, is a payment (in a currency), es ...

s. Companies, governments, families, and other organizations use budgets to express

strategic plan Strategic planning is the activity undertaken by an organization through which it seeks to define its future direction and makes decision making, decisions such as resource allocation aimed at achieving its intended goals. "Strategy" has many def ...

s of activities in measurable terms. Preparing a budget allows

companies A company, abbreviated as co., is a legal entity representing an association of legal people, whether natural, juridical or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specifi ...

, authorities, private entities or

families Family (from ) is a group of people related either by consanguinity (by recognized birth) or affinity (by marriage or other relationship). It forms the basis for social order. Ideally, families offer predictability, structure, and safety as ...

to establish priorities and evaluate the achievement of their objectives. To achieve these goals it may be necessary to incur a deficit (expenses exceed income) or, on the contrary, it may be possible to save, in which case the budget will present a surplus (income exceed expenses). In the field of commerce, a budget is also a financial document or report that details the cost that a service will have if performed. Whoever makes the budget must adhere to it and cannot change it if the client accepts the service. A budget expresses intended expenditures along with proposals for how to meet them with resources. A budget may express a surplus, providing resources for use at a

future The future is the time after the past and present. Its arrival is considered inevitable due to the existence of time and the laws of physics. Due to the apparent nature of reality and the unavoidability of the future, everything that currently ex ...

time, or a deficit in which expenditures exceed

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...

or other resources.

Government

The budget of a

government A government is the system or group of people governing an organized community, generally a State (polity), state. In the case of its broad associative definition, government normally consists of legislature, executive (government), execu ...

is a summary or plan of the anticipated resources (often but not always from taxes) and expenditures of that government. There are three types of government budgets: the operating or current budget, the capital or investment budget, and the cash or cash flow budget.

By country

United States

The federal budget is prepared by the

Office of Management and Budget The Office of Management and Budget (OMB) is the largest office within the Executive Office of the President of the United States (EOP). The office's most prominent function is to produce the president's budget, while it also examines agency pro ...

, and submitted to Congress for consideration. Invariably, Congress makes many and substantial changes. Nearly all American states are required to have

balanced budget A balanced budget (particularly that of a government) is a budget in which revenues are equal to expenditures. Thus, neither a budget deficit nor a budget surplus exists (the accounts "balance"). More generally, it is a budget that has no budge ...

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

India

The budget is prepared by the Budget Division Department of Economic Affairs of the

Ministry of Finance A ministry of finance is a ministry or other government agency in charge of government finance, fiscal policy, and financial regulation. It is headed by a finance minister, an executive or cabinet position . A ministry of finance's portfoli ...

annually. The Finance Minister is the head of the budget making committee. The present Indian Finance minister is Nirmala Sitharaman. The Budget includes supplementary excess grants and when a proclamation by the

President President most commonly refers to: *President (corporate title) * President (education), a leader of a college or university *President (government title) President may also refer to: Arts and entertainment Film and television *'' Præsident ...

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 first budget of India was submitted on 18 February 1860 by James Wilson.

P C Mahalanobis Prasanta Chandra Mahalanobis Order of the British Empire, OBE, Indian National Science Academy, FNA, Indian Academy of Sciences, FASc, Fellow of the Royal Society, FRS (29 June 1893 – 28 June 1972) was an Indian scientist and statistician. He ...

is known as the father of Indian budget.

Philippines

The Philippine budget is considered the most complicated in the world, incorporating multiple approaches in one single budget system: line-item (budget execution), performance (budget accountability), and

zero-based budgeting Zero-based budgeting (ZBB) is a budgeting method that requires all expenses to be justified and approved in each new budget period. It was developed by Peter Pyhrr in the 1970s. This budgeting method analyzes an organization's needs and costs by ...

. The

Department of Budget and Management The Department of Budget and Management (DBM; ) is an Executive departments of the Philippines, executive body under the Office of the President of the Philippines. It is responsible for the sound and efficient use of government resources for n ...

(DBM) prepares the National Expenditure Program and forwards it to the Committee on Appropriations of the House of Representatives to come up with a General Appropriations Bill (GAB). The GAB will go through budget deliberations and voting; the same process occurs when the GAB is transmitted to the

Philippine Senate The Senate of the Philippines () is the upper house of Congress, the bicameral legislature of the Philippines, with the House of Representatives as the lower house. The Senate is composed of 24 senators who are elected at-large (the country f ...

. After both houses of Congress approves the GAB, the President signs the bill into a General Appropriations Act (GAA); also, the President may opt to

veto A veto is a legal power to unilaterally stop an official action. In the most typical case, a president (government title), president or monarch vetoes a bill (law), bill to stop it from becoming statutory law, law. In many countries, veto powe ...

the GAB and have it returned to the legislative branch or leave the bill unsigned for 30 days and lapse into law. There are two types of budget bill veto: the line-item veto and the veto of the whole budget.

Personal

A personal budget or home budget is a finance plan that allocates future personal

towards

savings Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an ...

and

debt Debt is an obligation that requires one party, the debtor, to pay money Loan, borrowed or otherwise withheld from another party, the creditor. Debt may be owed by a sovereign state or country, local government, company, or an individual. Co ...

repayment. Past spending and personal debt are considered when creating a personal budget. There are several methods and tools available for creating, using, and adjusting a personal budget. For example, jobs are an income source, while bills and rent payments are expenses. A third category (other than income and expenses) may be assets (such as property, investments, or other savings or value) representing a potential reserve for funds in case of budget shortfalls.

Corporate budget

The budget of a

business Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for ...

, division, or

corporation A corporation or body corporate is an individual or a group of people, such as an association or company, that has been authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law as ...

Jonas Elmerraji (2021)
How Budgeting Works for Companies
investopedia.com Rosemarie Kelly (2019)
"Budgeting"
Institute of Certified Public Accountants in Ireland is a

financial forecast A financial forecast is an estimate of future financial outcomes for a company or project, usually applied in budgeting, capital budgeting and/or valuation. Depending on context, the term may also refer to listed company (quarterly) earnings gui ...

for the near-term future, usually the next

accounting period An accounting period, in bookkeeping, is the period with reference to which management accounts and financial statements are prepared. In management accounting the accounting period varies widely and is determined by management. Monthly accoun ...

, aggregating the expected revenues and expenses of the various departments – operations,

human resources Human resources (HR) is the set of people who make up the workforce of an organization, business sector, industry, or economy. A narrower concept is human capital, the knowledge and skills which the individuals command. Similar terms include ' ...

, IT, etc. It is thus a key element in

integrated business planning Integrated business planning (IBP) is a business management process that aims to align strategic, operational, and financial planning into a single, integrated process. Objective Integrated business planning (IBP) is used by organizations to i ...

, with measurable targets correspondingly devolved to departmental managers (and becoming KPIs); budgets may then also specify non-cash resources, such as staff or time. The budgeting process requires considerable effort, often involving dozens of staff; final sign-off resides with both the financial director and operations director. The responsibility usually sits within the company's financial management area in general, sometimes, specifically in "

FP&A Financial planning and analysis (FP&A), in accounting and business, refers to the various integrated financial planning, planning, financial analysis, analysis, and Financial_modeling#Accounting, modeling activities aimed decision support, at sup ...

". Professionals employed in this role are often designated "Budget Analyst",Budget Analysts
, Bureau of Labor Statistics a specialized

financial analyst A financial analyst is a professional undertaking financial analysis for external or internal clients as a core feature of the job. functional budgets, relating to activities, and / or cash budgets, focused on receipts and payments. Incremental budgeting starts with the budget from the previous period, while under

activities/costs are included only if justified. Under all approaches expected sales or revenue, is typically the starting point; this will be based on the business' planning for the period in question. Directly related elements and costs are typically linked to these (

activity based costing Activity-based costing (ABC) is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. Therefore, this model assigns more in ...

may be employed). Support and management functions may be revisited, and the resultant "fixed" costs, such as rent and payroll, will be adjusted - at a minimum for inflation.

Capital expenditure Capital expenditure or capital expense (abbreviated capex, CAPEX, or CapEx) is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. It is considered ...

, both new investments and maintenance, may be budgeted separately; debt servicing and repayments likewise. The master budget aggregates these all. See

Financial forecast A financial forecast is an estimate of future financial outcomes for a company or project, usually applied in budgeting, capital budgeting and/or valuation. Depending on context, the term may also refer to listed company (quarterly) earnings gui ...

Cash flow forecast Cash flow forecasting is the process of obtaining an estimate of a company's future cash levels, and its financial position more generally. A cash flow forecast is a key financial management tool, both for large corporates, and for smaller entr ...

, . Whereas the budget is typically compiled on an annual basis - although, e.g. in

mining Mining is the Resource extraction, extraction of valuable geological materials and minerals from the surface of the Earth. Mining is required to obtain most materials that cannot be grown through agriculture, agricultural processes, or feasib ...

, this may be quarterly - the monitoring is ongoing, with financial and operational adjustments ( or interventions) made as warranted; see for further discussion. Here, if the actual figures delivered come close to those budgeted, this suggests that managers understand their business and have been successful in delivering. On the other hand, if the figures diverge this sends an "out of control" signal; additionally, the share price could suffer where these figures have been communicated to analysts. Criticism is sometimes directed at the nature of budgeting, and its impact on the organization. Additional to the cost in time and resources, two phenomena are identified as problematic: First, it is suggested that managers will often "game the system" in specifying targets that are easily attainable, and / or in asking for more resources than required, such that the required resources will be budgeted as a compromise. A second observation is that managers' thinking may emphasize short term, operational thinking at the expense of a long term and strategic perspective, particularly when

bonus payment A bonus payment is usually made to employees in addition to their base salary as part of their wages or salary. While the base salary usually is a fixed amount per month, bonus payments more often than not vary depending on known criteria, such ...

s are linked to budget. See .

Types of budgets

* Sales budget – an estimate of future sales, often broken down into both units. It is used to create company and 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. *

Capital budget Capital budgeting in corporate finance, corporate planning and accounting is an area of capital management that concerns the planning process used to determine whether an organization's long term capital Fixed investment, investments such as new ...

– used to determine whether an organization's long-term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. * 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 to determine when income will be sufficient to cover expenses and when the company will need to seek outside financing. * Conditional budgeting is a budgeting approach designed for companies with fluctuating income, high fixed costs, or income depending on sunk costs, as well as NPOs and

NGOs A non-governmental organization (NGO) is an independent, typically nonprofit organization that operates outside government control, though it may get a significant percentage of its funding from government or corporate sources. NGOs often focus ...

. * 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 labour, materials, and other related expenses. The project budget is often broken down into specific tasks, with task budgets assigned to each. A cost estimate is used to establish a project budget. * Revenue budget – consists of

receipts of

and the expenditure met from these revenues. Revenues are made up of

tax A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...

es and other duties that the government levies. Various countries and unions have created four types of tax

jurisdiction Jurisdiction (from Latin 'law' and 'speech' or 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, the concept of jurisdiction applies at multiple level ...

s: interstate,

state State most commonly refers to: * State (polity), a centralized political organization that regulates law and society within a territory **Sovereign state, a sovereign polity in international law, commonly referred to as a country **Nation state, a ...

local Local may refer to: Geography and transportation * Local (train), a train serving local traffic demand * Local, Missouri, a community in the United States Arts, entertainment, and media * ''Local'' (comics), a limited series comic book by Bria ...

and tax jurisdictions with a special status ( Free-trade zones). Each of them provides a

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: m ...

flow to the corresponding revenue budget levels. * Expenditure budget – includes spending data items. * Flexibility budget – it is established for fixed cost and variable rate is determined per activity measure for variable cost. * Appropriation budget – a maximum amount is established for certain expenditure based on management judgement. *Performance budget – it is mostly used by organization and ministries involved in the development activities. This process of budget takes into account the end results. * Zero based budget – A budget type where every item added to the budget needs approval and no items are carried forward from the prior years budget. This type of budget has a clear advantage when the limited resources are to be allocated carefully and objectively. Zero based budgeting takes more time to create as all pieces of the budget need to be reviewed by management. *Personal budget – A budget type focusing on expenses for self or for home, usually involves an income to budget.

References

External links

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Origin of the word
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