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:
- 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.
- 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.