A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a family, a group of people, a business, a government, a country, a multinational organization or just about anything else that makes and spends money. At companies and organizations, a budget is an internal tool used by management and is often not required for reporting by external parties.

Budget Development Process

The process begins by establishing assumptions for the upcoming budget period. These assumptions are related to projected sales trends, cost trends and the overall economic outlook of the market, industry or sector. Specific factors affecting potential expenses are addressed and monitored. The budget is published in a packet that outlines the standards and procedures used to develop it, including the assumptions about the markets, key relationships with vendors that provide discounts, and explanations of how certain calculations were made.

The sales budget is often the first to be developed, as subsequent expense budgets cannot be established without knowing future cash flows. Budgets are developed for all the different subsidiaries, divisions and departments within an organization. For a manufacturer, a separate budget is often developed for direct materials, labor and overhead.

A budget is a forecast of revenue and expenses over a specified future period. Budgets are utilized by corporations, governments, and households. Budgets are an integral part of running a business efficiently. Budgeting for companies serves as a plan of action for managers as well as a point of comparison at a period's end.

The budgeting process for companies can be challenging, particularly if customers don't pay on time or revenue and