Annual Budget - Definition, What is Annual Budget, Advantages of Annual Budget, and Latest News - ClearTax (2024)

What is an Annual Budget?

Annual budget can be described as a plan laid out for a company's expenditures for a financial year. Laying down an annual budget helps companies balance out the expenditure with the income/revenue they are looking at for the year.

A budget is said to be in balance if the revenue is equivalent to the expenditure. If the company needs to borrow money to handle the expenses, i.e. if the company's expenditure outweighs the revenue, the company is said to be in deficit. If the revenue outweighs the expenditure for the year, the company is said to be in surplus. The surplus is used as savings or for expansion.

Understanding Annual Budget

Annual budgets are planned by individuals, companies, governments, and other types of entities that have to keep track of financial transactions. The budget can be laid out for a calendar year or for a financial year. The budget must be planned such that they realise the financial goals.

The primary focus of the annual budget for corporations and governments is planning with respect to income sources and expenses. Planning assets, equity, and liabilities are mandatory to run the operations over the upcoming year. The cash flow towards reinvestment, discretionary purposes, and debt management form a part of the primary goal.

The secondary role of the budget is to break down the annual goals to monthly goals and compare the actual performance of every month with the corresponding goals to see where the company stands at a point in time.

Government's Annual Budget

India's annual financial statement is known as the Union Budget of India. The union budget is the government's plan regarding the finances, revenues, and expenditures for the upcoming financial year. The Finance Minister presents the union budget in the Lok Sabha, and it comprises of the following components: - Annual financial statement - Demand for grants - Appropriation bill - Finance bill - Macro-economic framework for the year - Medium-term fiscal policy/strategy statement - Expenditure profile - Expenditure budget - Receipts budget