A government budget is a financial document that outlines revenues and expenses over a year. This document is used to determine the three main types of budgeting: balanced budget, surplus budget and deficit budget. It is important for companies to understand the different types of budgets and their classifications in order to ensure successful operations and profitability. A balanced budget is when the total amount of revenue is equal to the total amount of expenses.
This type of budget is not feasible for developing countries, as it restricts the scope of government spending on public welfare plans. A surplus budget occurs when the total amount of revenue exceeds the total amount of expenses. This type of budget can lead to excessive government spending or the accumulation of debt. A deficit budget occurs when the total amount of expenses exceeds the total amount of revenue.
In addition to these three types of budgets, companies also need master budgets that integrate different departments. Operating budgets include sales, production, direct labor, direct materials, overhead, administrative expenses, sales, the cost of manufactured goods, and the cost of goods sold. Financial budgets include a budgeted income statement along with a balance sheet, a cash budget, and a capital expenditure budget. The budgeted income statement and budgeted balance sheets are also known as pro forma financial statements.
Activity-based budgeting is another type of top-down budget that determines the amount of inputs needed to support the objectives or products set by the company. This type of budget can be beneficial for companies as it allows them to plan ahead and allocate resources accordingly. By understanding how each type works, companies can make informed decisions about their finances and plan for future growth.
