A budget is (a) the quantitative expression of a proposed plan of action by management
for a specified period and (b) an aid to coordinate what needs to be done to implement
that plan. A budget generally includes both financial and nonfinancial aspects of the plan, and it serves as a blueprint for the company to follow in an upcoming period. A financial budget quantifies management’s expectations regarding income, cash flows, and financial position. Just as financial statements are prepared for past periods, financial statements can be prepared for future periods—for example, a budgeted income statement, a budgeted statement of cash flows, and a budgeted balance sheet. Underlying these financial budgets are nonfinancial budgets for, say, units manufactured or sold, number of employees, and number of new products being introduced to the marketplace.