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.