When Oscar explains to Michael about the budget surplus using a lemonade stand analogy, he talks about the budget as a resource “available for spending”. I always looked at budget as being a target for your sales and contribution margin, which I understand are far more important… How real is it on an accounting basis?
For those who do not know which skit I’m talking about, https://youtu.be/dWfrMMNeK2k
Edit: The Office’s.
In: 2
The word budget can kind of mean two things.
1. It can just mean the money available for spending. “Our budget for HR salaries is $400k per year.” That means that’s money just made available for the given cause, HR salaries in this case. It’s not necessarily an estimate of what will be spent, it’s an allowance of what can be spent. Not sure if this technically meets the accounting definition, but is used this way frequently.
2. In corporate, sometimes budgeting will involve trying estimate dollars made and spent so you know how much money you need or what extra you’ll have. In this sense, it’s an exercise in forecasting. When a company says, “Our annual budget,” that’s usually what they’re referring to.
In this case, Oscar is referring to #1. Key words, “Actual, final costs of the year.” In other words, corporate allocated them so much money, they didn’t use all of it, and so if they don’t spend it it will be deducted from next year’s allocation. This is actually fairly common in many companies and government organizations.
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