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What is an 'Annual Budget'

A simple annual budget lays out projected income and expenses for a 12-month period, but in many instances, particularly for non-individuals, it is expanded to include a balance sheet and cash flow statement. Annual budgets are used by individuals, corporations, governments, and other types of organizations that need to keep track of financial activity.

BREAKING DOWN 'Annual Budget'

Annual budgets can apply to either a fiscal or calendar year. These budgets help their creators to plan for the upcoming year and make the necessary adjustments to meet their financial goals. Annual budgets help individuals to better manage their money. For corporations, governments, and other organizations, annual budgets are critical and often mandated for planning purposes with respect to sources of income and necessary expenses; assets, liabilities, and equity required to support operations over the one-year period; and cash flows used for reinvestments, debt management, or discretionary purposes.  

Another prime role of an annual budget, typically broken down into monthly periods, is the enabling of budget versus "actual" performance comparisons. For example, if an individual has to dip into a savings reserve at the end of a month to pay a credit card bill, he or she can look at the annual budget items to find out where an actual expense exceeded a budgeted expense and make appropriate adjustments. For a sole proprietor to a large corporation alike, an internal annual budget is vital in keeping track of moving parts of a business to reach or surpass key financial objectives.

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