Budget

Budget is a term that has different meanings, depending on whether it is applied to non-profit ("voluntary") organisations, commercial organisations, government, or households/family units.

Non-profit organisations

In voluntary organisations, budgeting refers to the process whereby organisations attempt to review expenditure against income, in the light of the organisation's financial position. The standard aim of a budget is to ensure that expenditure does not exceed income; but in some cases the aim may be to build up reserves, in others it may be to run down reserves (perhaps to meet some statutory requirement¹ or to ensure that a grant is fully spent), or even to run down the money held by an organisation with a view to winding it up.

Within this definition, the expenditure side of a budget has two elements: firstly, an estimate of likely known costs of items over which the organisations has little or no control, based on past experience; and secondly, a financial limit on that expenditure over which there is some control. The income side typically also has two elements: known or predictable income; and income for which there is a target. Once agreed within the organisation, comparison of income and expenditure against budget then becomes a means of financial control.

The term "budget" also applies to the expenditure permitted to a project or area of work.

Commercial organisations

In business, the term "budget" is typically used of the expenditure delegated to a particular branch or activity of the business.

Government

In government, "the budget" normally means overall proposals for raising and spending revenue, with a view to financing the operations of government and managing the economy. (See also budget balance and budget deficit.)

Government agencies may also have budgets in the same sense as non-profit organisations.

Households

In households the term "family budget" means the present balance of income and expenditure. For instance, for an individual or family seeking debt advice, the first action of a debt adviser will be to ask for a budget in the form of a statement of a statement of income and expenditure. In this the emphasis is on the expenditure, but the adviser will also explore the possibility of entitlements which may increase income.

Notes

1. In England and Wales it is illegal for a charity to retain an unreasonable level of reserves instead of applying them to charitable purposes.