Budget

Definition

A budget is a financial plan that estimates revenue, expenses, and resources over a specific period. It serves as a tool for decision-making and performance evaluation for managers.

5 Must Know Facts For Your Next Test

1. Budgets help managers coordinate activities across different departments.
2. They serve as benchmarks for measuring actual performance against planned objectives.
3. Budgets can be flexible or static depending on the level of adaptability required.
4. The master budget includes operating budgets and financial budgets.
5. Participatory budgeting involves input from various organizational levels to increase commitment.

Review Questions

• What are the main components of a master budget?
• How do flexible budgets differ from static budgets?
• Why is participatory budgeting beneficial in an organization?

Related terms

Master Budget:

A comprehensive financial plan that includes various individual budgets related to sales, production, and other operational areas.

Flexible Budget:

A budget that adjusts or flexes with changes in volume or activity levels.

Variance Analysis:

The process of comparing actual results to budgeted figures to identify differences and their causes.