It is a normal practice for companies to prepare a single budget based on expected earnings and expenditures. Such budgets are centralized and created towards the end of a financial year for forthcoming 12 months. It is assumed that both projected earnings and expenditures tally with actual figures.
Expenditure and Earnings
For a budgetary period, expenditure and earnings must remain the same. In case expenditure exceeds earnings a budget is considered as deficit; whereas if earnings exceed expenses then the concerned budget is treated as surplus. Very rarely do expenditure and earning tally resulting in a deficit or surplus budget. In a normal scenario an ideal budget is considered where expenditure and earnings are equal. However such is not the case and alternative scenarios must be considered. Two such contrasting scenarios are when a company faces the threat of bankruptcy and when a company achieves unprecedented and unplanned sales.