What is a Budget?
A budget is a future plan or forecast written in numbers.
This plan can be financial and quantity information.
This budget forecast is then compared to what actually happens.
This is called the actual outcome.
Budgeting helps management make decisions for the business to run better.
Managers compare the budget to actual results to measure the difference.
Differences are called variances and can be a good or bad .
This example points out variances as favourable F or unfavourable U
- If actual revenue is higher than planned - favourable
- If actual revenue is lower than planned - unfavourable
- If actual expense is higher than planned - unfavourable
- If actual expense is lower than planned - favourable
An Example of an Expense Budget