Personal Budgeting Southern Wesleyan University

simple definition of budget

Managers may doubt the value of preparing one budget after another at frequent intervals, even if there are major differences between the figures of two consecutive budgets. Some degree of centralisation may be desirable for strategic areas like defence, security, etc., but excessive centralisation may have adverse effect on decision process. Budgets must be accurate, acceptable and prepared with full participation of managers of different responsibility centres. It will be easier to resolve any difference between two departments when there are written instructions in the budget manual. To indicate the need for borrowing or the availability of idle cash for investment. To prepare a ‘Master Budget’ combining and coordinating the individual budgets.

  • Finally, the budget is evaluated for its effectiveness in attaining the organization’s stated goals and objectives.
  • Such reports are usually in the forms of Departmental Operating Statement (Fig. 13.11) which shows the operating performance of a departmental manager, during a particular period.
  • Better coordination and control by top management over subordinate level are possible.
  • In order to maintain the profitability and solvency of any business, a plan has to be formulated in relation to future financial requirements.
  • Managers may doubt the value of preparing one budget after another at frequent intervals, even if there are major differences between the figures of two consecutive budgets.
  • It is calculated on the basis of budgeted working days in a year on a month.

The line-item budget approach has several advantages that account for its wide use. It is a familiar approach to those involved in the budget development process. This method budgets by organizational unit and object and is consistent with the lines of authority and responsibility in organizational units. As a result, this approach enhances organizational control and allows the accumulation of expenditure data at each functional level. Finally, line-item budgeting allows the accumulation of expenditure data by organizational unit for use in trend or historical analysis. When funding has been secured, detailed project budgets should be developed.

Government Budget

You can also use this money if you have an unexpected medical emergency that arises. But being debt-free without any savings won’t pay your bills in an emergency. A zero balance can quickly become a negative balance if you don’t have a safety net. Thanks to budgeting software, you don’t have to be good at math; you simply have to be able to follow instructions. If you know how to use spreadsheet software, you can make your own ledger.

  • Shareholders EquityShareholder’s equity is the residual interest of the shareholders in the company and is calculated as the difference between Assets and Liabilities.
  • Your income is higher than your expenses, so you have a deficit budget.
  • Likewise, if you are spending 15% of your income on housing, you are under the benchmark!
  • If you would like to trying creating your budget with digitally, try tracking your spending and managing your budget using budgeting tools like EveryDollar or Mint.

A flexible budget that can be used to estimate what costs should be for any level of activity within a specified range. A flexible budget shows what costs should be for various levels of activity. These budgets are then combined with data from the sales budget and the selling and administrative expense budget to determine the cash budget. Companies usually propose a budget to plan for and their control their revenues expenses , failure to prepare a budget could lead to significant cash flow problems or even f disaster for a company. One of the management major responsibilities is planning. Planning is the process of establishing en wide objectives.

Budgets and Budgeting (Introduction)

It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company’s performance. Managers and employees together frame the financial plan, keeping in mind goals and targets—set by top-level management. Following are different types of budgets prepared by individuals, businesses, and governments.

simple definition of budget

Campuses are normally allocated a certain level of resources that they have the authority to allocate to educational and support services. These budgetary allocations are meant to cover those areas over which campus decisionmakers have control. For example, schools that have authority over staffing decisions may be allocated funds for staff costs using the site-based budgeting approach. In contrast, school districts that make staffing decisions centrally may not allocate funds to the individual school site for staff costs. A different focus is seen in performance budgeting models.


Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. These include estimations of sales trends , cost trends , and the overall outlook of the market for the particular industry or sector. Variable costs or the costs that fluctuate in a business. For example, supplier and inventory costs are considered variable costs. Fixed costs or the costs that are related to operations, such as real estate costs. It consists of analyzing expenses and matching them to existing or future income sources.

simple definition of budget

This approach is unnecessarily complex and may distract administrative and board focus from important budgetary issues. To avoid these problems, the development of multiyear program budgets, whether for capital or special programs, is recommended if state and local statutes permit multiyear budgeting. The following steps are basic to the planning process for both annual and multiyear construction and grant programs. Review the stated goals and objectives to determine that they are the basis for the entity’s activities and operations. Although normally developed during the strategic planning process, the goals and objectives should be periodically reviewed for appropriateness. However, performance budgeting has limitations owing to the lack of reliable standard cost information inherent in governmental organizations.

The point of the budget is to keep you out of overwhelming debt and help you build a financial future that will give you more freedom, not less. So think about how you want your future to be and remember that keeping to your budget will help simple definition of budget you get there. Adding to your debt load, on the other hand, will mean that your future could be even tighter. You’ve accomplished all of the above, even putting together a nice spreadsheet that lays out your budget for the next 15 years.

simple definition of budget

Further, the performance approach does not necessarily evaluate the appropriateness of program activities in relation to reaching an organization’s goals or the quality of services or outputs produced. But in sum, performance budgeting may offer considerable enhancement to the line-item budget when appropriately applied. Performance evaluation allows citizens and taxpayers to hold policymakers and administrators in governmental organizations accountable for their actions.

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