Financial budget

Definition

A financial budget is a detailed plan that outlines an organization's expected income and expenses over a specific period. It helps managers allocate resources efficiently and forecast future financial performance.

5 Must Know Facts For Your Next Test

1. A financial budget typically includes projections for revenue, expenses, and cash flows.
2. It serves as a tool for strategic planning and control within an organization.
3. Budgets are often broken down into smaller periods, such as monthly or quarterly segments.
4. Variance analysis compares actual performance to the budget to identify deviations.
5. The budgeting process often involves multiple departments and requires coordination.

Review Questions

• What are the key components of a financial budget?
• How does variance analysis relate to budgeting?
• Why is it important for managers to use budgets in planning?

Related terms

Operating Budget: A detailed projection of all estimated income and expenses based on forecasted sales revenue during a given period.

Zero-Based Budgeting: A method where each expense must be justified for each new period, starting from a 'zero base'.

Cash Flow Forecast: An estimate of the timing and amounts of cash inflows and outflows over a specific period.