Budget (from French bougette, purse) generally refers to a list of all planned expenses and revenues. A budget is an important concept in microeconomics, 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:
- Provide a forecast of revenues and expenditures i.e. construct a model of how our business might perform financially speaking if certain strategies, events and plans are carried out.
- 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, 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 your business activities.The assets should be valued with each and every cost.
The budget of a company
is compiled annually. A finished budget usually requires considerable effort and can be seen as a financial plan for the new financial year. While traditionally the Finance department compiles the company's budget, modern software
allows hundreds or even thousands of people in the various departments (operations, human resources, IT etc) to contribute their expected revenues and expenses to the final budget.
If the actual numbers delivered through the financial year turn out to be close to the budget, this will demonstrate that the company understands their business and has been successfully driving it in the direction they had planned. On the other hand, if the actuals diverge wildly from the budget, this sends out an 'out of control' signal and the share price could suffer as a result.
Event Management Budget
A budget and planning tool to assist in calculating and meeting the costs associated with a business or social event. It is a fundamental tool that enable the event director to predict with reasonable accuracy whether the event will result in a profit, a loss or will break-even.In addition to the above a budget can be used as a pricing tools..
The budget of a government
is a summary or plan of the intended revenues and expenditures of that government. In the 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 budgets, but the federal government is allowed to run deficits.
In the UK the budget is prepared by the Chancellor of the Exchequer, the second most important member of the government, and must be passed by Parliament. Parliament seldom makes changes to the budget.
Personal or family budget
In a personal or family budget all sources of income
(inflows) are identified and expenses
(outflows) are planned with the intent of matching outflows to inflows (making ends meet.) In consumer theory
, the equation restricting an individual or household to spend no more than its total resources is often called the budget constraint
Origin of the word