Question

What does it mean to say that the key to the entire budget (e.g., the sales budget)is the forecast of operating activity?

Answer 1

Budget : means planning the expenditure of the coming year based on the estimation of the revenue that the company or organisation generates.

Operating activity: means generating the revenue and incurring expenses with respect to the main business activity of the organisation.

For any organisation, the main expenses would be operating expenses, the expenses that are required for running the company and for production or rendering of the main services. These are mandatorily incurred by any organisation and are unavoidable.

Also estimating the revenue that the company generates is more important in preparing the budget else everything planned will go wrong.

Hence for any type of budgeting , the key is the forecast of operating activity. Without that, forecast, budgeting can not be done.

Planning expenditures without sales budget is chasing an unknown dream or goal

Hence sales budget is the key forecast in budgeting.