QS Study

A budget is a formal written statement of management’s plans for a specified future time period, expressed in financial terms. It is an estimation of revenue and expenses over a specified future period of time; it is compiled and re-evaluated on a periodic basis. A forecast is a projection of what will happen at a higher level, generally key revenue items and overall expenses.

Difference between forecasting and budgeting areas follows:

Forecasting

  • The forecast is typically limited to major revenue and expense line items. There is usually no forecast for financial position, though cash flows may be forecasted.
  • The forecast is the mainly concerned with probable events.
  • The forecast is only a tentative estimate and can be revised.
  • Forecast results in planning.
  • The forecast is not used for evaluating the efficiency of performance.

Budgeting

  • The budget is a detailed representation of the future results, financial position, and cash flows that management wants the business to achieve during a certain period of time.
  • Budget is concerned with planned events.
  • The budget remains unchanged for the budget period.
  • The planning results in budgeting.
  • Budget is always used evaluating the effectiveness of performance.