Operating budget

Definition

An operating budget is a detailed projection of all expected income and expenses during a specific period, usually one fiscal year. It serves as a financial plan that guides an organization in achieving its operational goals.

5 Must Know Facts For Your Next Test

1. It typically includes revenue forecasts, cost of goods sold, operating expenses, and net income.
2. Managers use operating budgets to allocate resources efficiently and monitor performance against goals.
3. Variance analysis is often performed on the operating budget to understand deviations from planned figures.
4. The process of creating an operating budget involves input from various departments to ensure accuracy and comprehensiveness.
5. An effective operating budget can help identify potential financial issues early, allowing for timely corrective actions.

Review Questions

• What components are typically included in an operating budget?
• How do managers use the information provided by an operating budget?
• What is variance analysis and how does it relate to the operating budget?

Related terms

Master Budget: A comprehensive financial planning document that includes all smaller budgets within an organization.

Capital Budget: A budget used to plan for major capital investments or expenditures.

Forecasting: The process of predicting future financial performance based on historical data and market analysis.