Budget - a plan for the future that takes into account the resources that are available to the business

Reasons to budget:

  • Measuring all inflows and outflows of money can show how efficient the business is
  • Provides information to shareholders and investors
  • Ensures cash flow is adequate to meet the day-to-day needs of the business
  • Provides managers with the information they need to manage their departments and monitor their performance

Variance - The amount by which the actual financial results differ from the amount in the budget.

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