• Define the difference between forecasting and budgeting. What is the difference between an operating budget and a cash budget?

The first that we need to understand is the definition of both forecasting and budgeting. Forecasting explains that it is “a planning tool that helps management in its attempts to cope with the uncertainty of the future, relying mainly on data from the past and present and analysis of trends. Forecasting starts with certain assumptions based on the management’s experience, knowledge, and judgment.” From this definition we can understand the basic concept of forecasting is when estimates are not necessarily achievable or realistic. It is also important that we understand the meaning of budgeting. This term is defined as “an estimate, often itemized, of expected income and expense for a given period in the future.” The definition of budgeting helps us to understand that it is similar to forecasting because it determines an estimate for the future. A budgeting estimate is both obtainable and achievable unlike forecasting. Now that we understand the meanings of both budgeting and forecasting it is important that we understand what real life examples would look like which will help us to determine the differences.

An example of budgeting would be if a corporation wanted to know what quantity of a specific item needed to be sold at a certain price. For example if the organization was selling computer keyboard for twenty dollars per item and the goal was to sell ten thousand of these units, in financial terms the corporation would be looking at a budget of two hundred thousand. When a corporation is planning to make a budget they first need to rely on forecasting. This is the very first step & if goals seem achievable through forecasting than a budget is created. A real life example would be if the company known as “Apple” forecasted that