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Budget: Definition and Meaning
Definition
A budget is a financial plan that estimates expected revenue, expenses, cash flow, and other business results for a future period.
Why It Matters
A budget gives management a benchmark for evaluating actual results. It can support decisions about staffing, purchases, pricing, financing, capital expenditures, tax planning, project volume, and other operational priorities.
Budgets should be realistic and updated when circumstances change. Comparing actual results with budgeted results through variance analysis can help leadership identify questions that require action.
Example
A company prepares an annual budget with monthly revenue targets, payroll costs, operating expenses, equipment purchases, and projected cash balances.
Related Terms
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