What is the primary purpose of a budget?

The primary purpose of a budget is to plan and control financial resources. A budget serves as a financial blueprint for an organization, aiding in the allocation of resources in alignment with strategic goals. By planning through budgeting, organizations set targets for revenues and expenses, which facilitates proactive decision-making and resource management.

Budgets also help in controlling financial resources by providing benchmarks against which actual performance can be measured. This monitoring allows management to evaluate variances in financial performance, helping to ensure that the organization remains on track to meet its financial objectives.

While tracking historical financial performance is an important aspect of financial management, it is not the primary aim of a budget. Similarly, generating operational income is a goal linked to business activities but does not directly pertain to the budgeting process. Lastly, calculating tax liabilities is necessary for compliance, but it is not a core objective of budgeting, which focuses more broadly on planning and controlling operations and finances.