{"id":35593,"date":"2020-07-08T15:33:27","date_gmt":"2020-07-08T10:03:27","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=35593"},"modified":"2020-07-08T16:37:39","modified_gmt":"2020-07-08T11:07:39","slug":"operating-budget-meaning-and-significance","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/operating-budget-meaning-and-significance\/","title":{"rendered":"Operating Budget \u2013 Meaning and Significance"},"content":{"rendered":"

A budget is a projection of any expense or revenue over a given period of time. The timing may be one month or one year. A budget is an instrument that is useful to individuals or any organization as it indicates the goal of business owners to take their company where they want to in the coming period. The operating budget<\/a> is an all-inclusive document that outlines both the operating expenses to be incurred and the profits to be generated for a given period of time. This article strives to elucidate the concept of the operating budget, its purpose, components, and manner of preparation.<\/p>\n\n\n\n

What is an Operating Budget?<\/h2>\n\n\n\n

The operating budget consists of both revenue and expenses over a period of time (usually a quarter or a year) and is used by a corporation, government or agency to estimate, plan, and finance its activities. An operating performance budget<\/a> is planned as a target or schedule which the organization plans to meet in advance of a reporting period.<\/p>\n\n\n\n

An operating budget is a projection of the anticipated revenues and expenses for one or more future periods<\/em><\/strong>. The management team usually formulates an operating performance budget just before the start of the year, which displays planned levels of operation for the whole year. Indeed, if the operating budget is for a period of one year, the same may be subdivided into additional parts like a quarter or a month.<\/p>\n\n\n\n

Operating incomes and operating expenses<\/h2>\n\n\n\n

To quote precisely, the operating budget is a comprehensive document that outlines both the operating expenses to be incurred<\/em><\/strong> and the incomes to be generated<\/em><\/strong> for a given period of time.<\/p>\n\n\n\n

Operating expenses<\/em><\/strong> such as raw material acquisitions, manufacturing costs, interest on a short-term loan, employee’s compensation, office repairs, administrative expenditures, etc. are considered for operating budget purposes. Similarly, the operating incomes<\/em><\/strong> such as sales revenue, income by the sale of by-products, etc. are considered for operating budget purposes.<\/p>\n\n\n\n

A variety of subsidiary schedules might support this budget, containing details at a more detailed level. For instance, separate supporting budgets might be available that cover payroll, the cost of the products produced, factory overheads, and inventory.<\/p>\n\n\n\n

To assess the magnitude of any variances from predetermined plans, actual results are then compared with the operating budget. Over the year, the company’s management can adjust its activities to match actual results with the operating performance budget.<\/p>\n\n\n\n

The usefulness of an Operating Budget<\/h2>\n\n\n\n

An operating performance budget is useful to a business for the following purposes:<\/p>\n\n\n\n