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What is a Budget? Definition and Types

A budget is an estimation of income and expenses over a specified future period. It is a financial plan that is created and adjusted periodically, serving as a guide for managing finances. Budgets can be designed for individuals, families, businesses, organizations, governments, and any entity that earns and spends money. Within organizations, a budget is typically an internal tool used by management for financial planning, rather than for external reporting.

Types of Budgets

Budgets are generally classified into three main categories:

  1. Balanced Budget
    • A balanced budget occurs when total revenues are equal to or greater than total expenditures. This type of budget is often evaluated after the year’s revenues and expenses have been recorded. In some cases, a budget can be anticipated to be balanced based on projected income and expenses.
  2. Surplus Budget
    • A surplus budget is when income or receipts exceed expenditures. Surplus budgets are commonly associated with government financial planning and indicate efficient financial management. For individuals, this is often referred to as savings rather than a surplus.
  3. Deficit Budget
    • A deficit budget happens when expenses exceed income. This is a common term in government finance, where a deficit signals that spending has outpaced revenue. Accumulated deficits contribute to national debt, reflecting a need for financial adjustments.

Balanced, Surplus, and Deficit Budgets

Each of these budget types has its own implications:

  • Balanced Budget: Indicates a stable financial plan where income meets or exceeds expenses.
  • Surplus Budget: Reflects positive financial health, with resources available for savings or investment.
  • Deficit Budget: Suggests that adjustments may be needed to reduce spending or increase revenue to achieve a balanced financial state.

Understanding these types of budgets is essential for effective financial planning, whether on a personal, organizational, or governmental level. For more information on budgeting and financial concepts, stay tuned to our resources.

3-4 Mark Questions
Q.1 What do you understand by a balanced budget? What are its merits and demerits?
Answer:
(A) Meaning●        A government budget is in balance only if the budget receipts is [3] similar and equal to the budget expenditure.

●        Budget expenditure = Budget receipts

(B) Merits and Demerits of balanced budgetMerits

a) It ensures financial stability.

b) It avoids wasteful expenditure.

 

Demerits

a) The process of economic growth can be hindered.

b) Welfare activities may be restricted.

 

Q.2 What do you understand by an unbalanced budget? What is its significance?
Answer:
(A) Meaning and types of unbalanced budgetA government budget is said to be unbalanced if the estimated government receipts are not equal to the estimated government expenditure.
(B) Types of unbalanced budgetSurplus budget

●        Estimated government. receipts > Estimated government expenditure

●        Budget is surplus if the estimated government receipt[4] s is more than the estimated government expenditure.

Deficit budget

●        Estimated government expenditure > Estimated government receipts

●        Budget is a deficit when the estimated government receipts are less than the estimated government expenditure.

(C) Significance of deficit budgeta) It accelerates economic growth.

b) It enables us to undertake welfare activities.

 

 

1-Mark Questions
Q.1 Define balanced budget.
Answer:

A government budget is said to be in balance if the budget receipts are equal to the budget expenditure.

Q.2 When is a budget said to be a surplus budget’?
Answer:

If the budget receipts are more than the budget expenditure, then the budget is termed as a surplus budget.

Q.3 When is a budget said to be a deficit budget?
Answer:

If the budget receipts are less than the budget expenditure, then the budget is termed as a deficit budget.

 The above-mentioned is the concept that is explained in detail about balanced, surplus, and deficit budget for Class 12 students. To know more, stay tuned to Eduacademy.

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