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What is a Budget?
A budget in economics refers to the quantity of money need to meet a certain number of the expenditures require to start a project. In this way, it can be distinct as a predicted figure that guesses the cost of achieving said neutral will entail.
It is the delimitation in economic terms of the conditions surrounding the preferred project and the probable results to be reached after its completion within a particular time. For this reason, this expression of a quantitative nature supposes, in turn, a high level of accordance with the business plan and the strategies that mark the path of the company.
Following the mark by the initial meaning, it could be said that a budget expresses through financial terms the action plan of a company or an entrepreneur in particular. This, through its preparation, establishes the resources and financial flows that are going to commit to said project over a specific time.
Features of Budget
Among the physiognomies that every budget must present, we can highpoint the following:
- A budget is essentially an estimate of the cost of carrying out a project.
- In this sense, the budget considers all the expected income and expenses and allows us to monitor them.
- Its main functions include financial control, expense control, economic and financial planning, and risk reduction.
- It must be adaptable and flexible because the environment can change.
- Budgets are periodic. That is, they are made for a certain period.
- We can create budgets to control our domestic finances, for example, how States prepare budgets to manage public finances.
- In short, it is a tool that allows us to know the cost of a specific project while allowing us to control, at all times, the income and expenses that this project considers for a particular year.
History of Budget
We must distinguish that the history and origin of budgets go back to the beginning of time, so we are commerce with a tool previously used for the same function, or similar functions, by other cultures.
The Egyptians, for example, projected the yield of their wheat crops, their goal being to stop lean years. Similarly to the Egyptians, the Romans counted the payment capacity of conquer peoples. It calculating the consistent compliment that would later money the territory.
As a planning and control instrument, the budget had its source in the public sector at the end of the 18th century. In aptitude, the British Assembly drew up the kingdom’s spending plans, giving guidelines for their execution and control. However, there are authors such as Vlaemmentc, who in his studies highlight the use of budgets in previous periods.
Period of Budget
About the period we are talking about, it is possible to classify the different types of budgets between short-term plans (typical of daily projects and faster) and long-term goals (more common in the activity of large companies or the economic policies of the countries).
Commonly, the annual budgets of a company are typically express with the following periods:
First trimester: In English, it allies with “quarter” (fourth of the year), and for this reason, it is mention as Q1.
Second trimester: It is typically reveal to as Q2.
Third trimester: It is typically reveal as Q3.
Fourth trimester: It is typically reveal to as Q4
Every quarter has three months and therefore completes a full year of 12 months.
In other words, the budget can be unspoken as marking the action plan that the company will carry out. It defining the objectives that are sought in a said task and the functions that need to carries out to attain it. In this intelligence, it is common for budgets to have a series of common characteristics. It as predictability, affordability, flexibility, reliability, participation and opportunity.
Types of Budget
Among the most common budget types, depending on their function, we can highlight the following:
- Master budget
- Operating budget
- Cash Flow Budget
- Sales budget
- Production budget
- Expense budget
- Income budget
- Zero-based budget
- Capital budget
If you want to know the characteristics of the types mention, you can expand in the article below. It where we delve into the different kinds of budgets.
Conclusion
It concept has several uses, usually linked to the area of finance and economics. The budget in this intelligence is the amount of project to be essential to meet certain expenses.
For example, a family calculates its income and incidentals and settles that it has a budget of 1,000 dollars per month. This means that the monthly costs should not exceed this number, then the family will suffer arrears. It is developing an assistance in these cases to accomplish savings goals.
Another example arises when tourists travel with x amount of money and know that it will have to be enough to satisfy their needs throughout their stay. If a travelers has of 500 pesos for a four-day vacation, and on the second day, he has already spent 400 pesos when cramming the numbers. It will realize that he has to cut his costs not to run out of money.
Also Read: Analysis – Definition, Concept, Types of Analysis and Examples
Review What is a Budget? – Features, History, Periods and More.