Budget

A budget is a plan expressed in numbers. It takes the future intentions of a business and turns them into specific, measurable targets. Because it is numerical, a budget makes it easy to compare what was expected with what actually happened. This comparison allows managers to spot deviations and take corrective action — so a budget also works as a control device. But since it begins with forecasting, it is fundamentally a planning tool.

Example: Sales Budget

A sales budget might forecast the sales of different products in each area for a particular month. It states, in numbers, how much the company expects to sell and where.

Example: Workforce Budget

A budget may also show the number of workers required in the factory during peak production times. This helps the firm plan its hiring and scheduling.

Cash Budget — a detailed illustration

The cash budget is a basic tool for managing cash. It is a statement that shows estimated cash inflows and cash outflows over a given period.

• Cash inflows generally come from cash sales.
• Cash outflows are usually the costs and expenses of running the business.
• The net cash position is found by subtracting outflows from inflows: inflows – outflows = surplus or deficiency …