Budgeting is a process. This means budgeting is a number of activities performed in order to prepare a budget. A budget is a quantitative plan used as a tool for deciding which activities will be chosen for a future time period.

In a business, the budgeting for operations will include the following:

  • preparing estimates of future sales

  • preparing estimates of future cash collections and disbursements

  • preparing estimates of the future day-to-day activities of the organization

  • summarizing these estimates into an income statement and balance sheet

The budgeted income statement and balance sheet are also known as pro-forma financial statements. Once prepared and approved, the budgeted income statement and balance sheet are used to control the future activities of the business.

Studies show that exam questions are a great way to learn and retain important information. Gain access to our 1,700 accounting exam questions (and answers) when you upgrade to PRO.