Skip to ContentGo to accessibility pageKeyboard shortcuts menu
OpenStax Logo

A photograph shows two people on a city street looking at a map.
Figure 7.1 Budget. Chris and Nikki needed to budget effectively in order to take advantage of sightseeing opportunities while studying abroad. (credit: modification of “Tourists: Here or there?” by “morebyless”/Flickr, CC BY 2.0)

Chris and Nikki are studying abroad next semester. Chris wants to spend her weekends sightseeing, but she does not have a lot of extra money. She creates a budget so she can save money to sightsee. She can reliably predict costs such as tuition, books, travel, and much of the sightseeing costs. She can also predict the amount of resources she will have to meet those costs, including scholarships, some savings, and earnings from her job.

Chris developed a budget from this information and planned for emergencies by including extra working hours and listing expenses that could be eliminated. On her trip, Chris was very careful with expenses and visited all the places she budgeted to visit.

Chris’s roommate, Nikki, on the other hand, did not plan ahead before going abroad. She did not have any travel funds for the last several weeks and lamented that she should not have purchased so many souvenirs.

Chris and Nikki are clear illustrations of why people and companies prepare budgets. Preparing a budget for future anticipated activities requires a company to look critically at its revenue and expenses. A good budget gives management the ability to evaluate results at the end of the budget cycle. Even well-planned budgets can have emergencies or unplanned financial disruptions, but having a budget provides a company with the information to develop an alternative budget. A good budget can be adjusted to work with changes in income and still produce similar results.

In this chapter, you will learn the basic process companies use to create budgets and the general composition of basic budgets that are summed up in a master budget. You will also learn the importance of the flexible budget and be introduced to the idea of how budgets are used to evaluate company and management performance.

Citation/Attribution

This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution-NonCommercial-ShareAlike License and you must attribute OpenStax.

Attribution information
  • If you are redistributing all or part of this book in a print format, then you must include on every physical page the following attribution:
    Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters
  • If you are redistributing all or part of this book in a digital format, then you must include on every digital page view the following attribution:
    Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters
Citation information

© Jul 16, 2024 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.