Budget
In one sentenceA numerical financial plan for the coming period that covers expected revenues, expenses and cash flows, used as a tool for planning and control.
Simply put
A budget turns your plan for next year into numbers: how much you expect to sell, how much you will spend, and how much will be left. You prepare it before the period starts, not after.
Its real value shows during the year: you compare actual figures with your plan every month, so you know early where you overspent and where you fell behind, and you act before the year ends.
Worked example
A household goods store prepares next year's budget: it expects sales of 1,200,000 SAR, cost of goods at 60% of sales, and operating expenses of 300,000 SAR.
Expected sales1,200,000 SAR
Expected cost of goods (60%)1,200,000 × 60% = 720,000 SAR
Expected operating expenses300,000 SAR
Expected profit = 1,200,000 − 720,000 − 300,000180,000 SAR
Formula: Expected sales − expected cost of goods − expected expenses
Don't confuse it with
Statement of financial positionThe balance sheet is a picture of what actually happened at a specific date, while a budget is a plan for what you expect in the future.