Annual Budget
An annual budget lays out a company's projected income and expenses for a 12-month period. For corporations, governments, and other organizations, annual budgets are critical and often mandated for planning purposes with respect to sources of income and necessary expenses — assets, liabilities, and equity required to support operations over the one-year period; and cash flows used for reinvestments, debt management, or discretionary purposes. Budgets can be in balance (expenditures = revenues), in deficit (expenditures exceed revenues), or in surplus (revenues exceed expenditures). For example, if an individual has to dip into a savings reserve at the end of a month to pay a credit card bill, they could look at the annual budget items to find out where an actual expense exceeded a budgeted expense and make appropriate adjustments. It is in deficit if expenditures exceed revenues, and it is in surplus if revenues exceed expenditures.
What Is an Annual Budget?
Annual budgets are considered to be balanced if projected expenditures are equal to projected revenues. It is in deficit if expenditures exceed revenues, and it is in surplus if revenues exceed expenditures.
Understanding an Annual Budget
Annual budgets can apply to either a fiscal or calendar year. These budgets help their creators to plan for the upcoming year and make the necessary adjustments to meet their financial goals. Annual budgets help individuals to better manage their money. For corporations, governments, and other organizations, annual budgets are critical and often mandated for planning purposes with respect to sources of income and necessary expenses — assets, liabilities, and equity required to support operations over the one-year period; and cash flows used for reinvestments, debt management, or discretionary purposes.
Another prime role of an annual budget, typically broken down into monthly periods, is the enabling of budget versus "actual" performance comparisons. For example, if an individual has to dip into a savings reserve at the end of a month to pay a credit card bill, they could look at the annual budget items to find out where an actual expense exceeded a budgeted expense and make appropriate adjustments. For a sole proprietor to a large corporation alike, an internal annual budget is vital in keeping track of moving parts of a business to reach or surpass key financial objectives.
Related terms:
Accounting
Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS. read more
Budget : Corporate & Personal Budgets
A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. read more
Calendar Year
A calendar year is a one-year period that begins on January 1 and ends on December 31, based on the commonly-used Gregorian calendar. read more
Cash Flow
Cash flow is the net amount of cash and cash equivalents being transferred into and out of a business. read more
Equity : Formula, Calculation, & Examples
Equity typically refers to shareholders' equity, which represents the residual value to shareholders after debts and liabilities have been settled. read more
Financial Performance
Financial performance measures how well a firm uses assets from operations and generates revenues. Read how to analyze financial performance before investing. read more
Income
Income is money received in return for working, providing a product or service, or investing capital. A pension or a gift is also income. read more
Reinvestment
Reinvestment is using dividends, interest, and any other form of distribution earned in an investment to purchase additional shares or units. read more
Retained Earnings
Retained earnings are a firm's cumulative net earnings or profit after accounting for dividends. They're also referred to as the earnings surplus. read more