INCOME BUDGET: WHAT IT IS FOR AND EXAMPLES - DUDAS - 2025

The income budget is the amount of money allocated for the maintenance and growth of a business. It is essential for management, being the result of business forecasts of sales income, general expenses and capital. It is essential that you establish whether you have sufficient financial means to run the operations, grow the business, and ultimately make a profit.

Without this planning, the future of the company can be uncertain, as it is possible that it is not known how much money is being received or spent. Revenue budgets ensure that companies allocate resources efficiently. By doing so they save time, effort and money.

Source: pixabay.com

The revenue budget contains a detail of a company's sales expectations for the period, both in units and in money. If a company has a large number of products, it generally aggregates its expected revenue in a smaller number of product categories or geographic regions.

What is the income budget for?

Revenue budgets help companies save time and effort through proper allocation of resources.

The main benefit is that it requires you to look to the future. The revenue budget should contain assumptions about the future and details about the number of units to be sold, expected sales prices, etc.

The budgeted amount of income is compared to the budgeted amount of expenses to determine if the income is adequate.

Finding out about a potential problem before the start of the year is a huge benefit. This allows alternate actions to unfold before the new year begins.

When an annual revenue budget is detailed by month, the actual revenue for each month can be compared to the budgeted amounts. Likewise, you can compare your actual income for the year to date with your budgeted income for the same period.

In other words, monthly income budgets allow you to monitor income as the year progresses, instead of receiving a surprise at the end of the year.

Basis for other estimates

It is extremely important to do the best forecasting work possible. This is because the information in the revenue budget is used by almost all other budgets, such as the direct materials budget and the production budget.

Consequently, if the income budget is wrong, so will the other budgets that use it as the original source.

Information about the unit sales projection in the revenue budget is entered into the production budget directly. From it, the budgets for direct labor and direct materials are created.

The revenue budget is also used to give managers a general sense of the scale of operations when creating the overall budget and the sales and administrative expense budget.

How is it done?

The information in the revenue budget comes from a variety of sources. Most of the details on existing products come from the staff who treat them on a daily basis.

The marketing manager provides information on sales promotion, which can alter the timing and quantity of sales. Engineering and marketing managers also provide information on the date of introduction of new products. They also provide the withdrawal dates of old products.

The income budget is generally presented in a monthly or quarterly format; an annual submission of information is too aggregated, thus providing little actionable information.

Determine sales

A business plan must be formulated and maintained. Business plans reflect the true state of an organization's current business. They also help analyze all aspects of the business, including expected revenue.

The sales revenue budget can be straightforward to build. It includes the number of units that are expected to be sold, along with the number of customers that are expected to purchase the products or services. It also includes the price that will be charged for those products and services.

Basic calculation

The basic calculation is the number of unit sales expected in a row. The expected average unit price is listed in the second row, with total sales appearing in the next row.

The unit price can be adjusted by marketing promotions. If returns or discounts are anticipated on sales, these items are also listed in the revenue budget.

It is very difficult to derive a sales forecast that shows to be accurate over any time period. Therefore, an alternative would be to periodically adjust the revenue budget with revised estimates, perhaps on a quarterly basis.

Examples

XYZ Company

XYZ Company plans to produce a wide variety of plastic pipes for the next budget year, all of which belong to a single product category. Your income budget is summarized below:

The XYZ sales manager is confident that the increase in demand in the second half will allow him to raise the price per unit from $ 10 to $ 11.

Additionally, it expects the company's sales discount percentage of 2% of total gross sales to be retained for the entire budget period.

A church

The benefits of a church income budget can be illustrated with an example. The annual income budget for a church should be prepared independently of the spending budget.

If the annual income budget is less than the annual expense budget, steps can be taken to develop additional income or to reduce planned expenses before the accounting year begins.

Suppose the church's monthly income budgets will vary based on the number of days of worship in the month, the time of year, and other factors.

As a result, the annual budget of $ 370,000 could consist of the following sequence of monthly amounts: $ 26,000 + $ 28,000 + $ 35,000 + $ 30,000 + $ 30,000 + $ 32,000 + $ 27,000 + $ 28,000 + $ 30,000 + $ 28,000 + $ 30,000 + $ 46,000.

Based on this budgeted monthly income, the church expects to have income of $ 181,000 for the first six months.

If the actual income for the first six months turns out to be just $ 173,000, church officials must address a shortfall of $ 8,000 by the middle of the year.

The deficit also raises the question of a possible similar shortage in the second half of the year. Thanks to the monthly income budget, church officials will be alerted well in advance to find a solution.

References

1. Business Dictionary (2019). Revenue budget. Taken from: businessdictionary.com.
2. Julie Davoren (2019). What Is a Revenue Budget? Small Business - Chron.com. Taken from: smallbusiness.chron.com.
3. Harold Averkamp (2019). What are the benefits of a revenue budget? Accounting Coach. Taken from: accountingcoach.com.
4. Steven Bragg (2019). Sales budget - Sales budget example. Accounting Tools. Taken from: accountingtools.com.
5. Madison Garcia (2017). What is a Sales Budget? Bizfluent. Taken from: bizfluent.com.