Finance and Accounts
Budgets
1.9 Budgets
A budget is a financial plan that outlines expected revenues and expenses over a specific period of time. Budgets help businesses allocate resources efficiently and control spending.
Types of Budgets
- Revenue Budget: Estimates expected sales revenue
- Cost Budget: Predicts expected costs such as wages, materials, and rent
- Profit Budget: Estimates expected profits after deducting costs from revenue
- Cash Budget: Forecasts expected cash inflows and outflows
Budget Variance
A variance occurs when actual financial results differ from the budgeted figures.
- Favourable Variance: Performance is better than expected (e.g., budgeted sales = $50,000, actual sales = $60,000 → favourable variance of $10,000)
- Adverse Variance: Performance is worse than expected
Managers analyze variances to identify problems and improve future planning.
Benefits of Budgeting
- Improve financial planning
- Help control spending
- Provide performance targets
- Improve coordination between departments