A budget is a plan expressed in dollar amounts that acts as a road map to carry out an organization’s objectives, strategies and assumptions.

A company might have a master budget or profit plan for the upcoming year. The master budget will include a projected income statement and balance sheet. Within the master budget will be operating budgets such as a sales budget, production budget, marketing budget, administrative budget, and budgets for departments. In addition there will be a cash budget and a capital expenditures budget.

It is common that the budgets prepared for the next accounting year will be detailed by quarter and/or by month. It is also typical that the annual budget will not be changed once the actual year begins. Good managers realize that a budget is a guide and that it cannot be so rigid that it prevents timely action when needed. In rare circumstances the annual budget might be revised, but only when the business environment has radically changed.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on AccountingCoach.com. You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.

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