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Bookkeeping Concepts

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What is budgeting?

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.