Budgeting and Forecasting: Beginner Level

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The budget is often the most important component of an organization's strategy, pointing the way in the direction of the goals they have. Educba defines a budget as, “a detailed statement of expected revenues and expenditure which quantifies the tactical plans of the management to reach a desired goal for the company during a specified ; According to AccountingToday, a budget has the following qualities: A budget is a picture of the desired outcomes, the financial situation, and the cash flows. A budget outlines a timeline for when the company anticipates achieving the outcomes. A budget compares actual outcomes to predicted performance to identify any deviations. Remedial measures can be taken by the finance department to get outcomes back on track with the budget. A budget offers instructions for allocating resources in accordance with the long-term plan of the business. In recent years, forecasting has attracted a lot of attention, mostly as a supplement to budgeting. Simply explained, budgeting quantifies the revenues a business wishes to attain, whereas forecasting forecasts revenues to be achieved in a future period. Educba defines a forecast as, “an estimation of future outcomes which quantifies where the company is headed during the forecasted ; According to AccountingToday, a forecast has the following qualities: Typically, forecasts only include significant income and spending line items. Forecasts are continuously updated (monthly or quarterly) Staffing, inventory levels, and production plans are just a few examples of short- and long-term factors for which forecasts can be employed. Actual results are not compared to forecasts. Updated on 13 February, 2023 - Read Less