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What is an expenditure budget?

Budgets usually consist of two parts: a revenue budget and an expenditure budget. Revenue budgets show where the money for an organisation comes from. An expenditure budget provides details about the costs of proposed activities. Because these costs are for future undertakings, an expenditure budget is always an estimate. To help with estimates, organisations generally provide an expenditure budget with objectives, terms of reference and a means of presentation.

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Organisations base their expenditure budgets on a series of objectives. These objectives are proposals designed to achieve organisational goals. For example, an organisation may propose in its expenditure budget to invest £1 million in a new factory in order to increase product sales. The money for particular objectives within expenditure budgets is therefore specific and measurable. However, organisations may overestimate these amounts to allow for any changes to the objectives that managers decide to make within the budget period.

Terms of reference

An expenditure budget has four terms of reference. The first places the budget in the context of an organisation's activities or the way it is structured. The second refers to the decision-makers and managers within an organisation who may be accountable for the expenditure budget. The third term of reference covers operating and capital expenditure, or a combination of these. The fourth is the time period over which an expenditure budget extends.


Organisations usually present an expenditure budget in line with their objectives and terms of reference. Together, these provide the quality and quantity of financial data related to expenditure outputs and inputs. The data should appear in an easily understood layout and include any debt. Expenditure budgets should also contain enough detail to allow third parties to confirm correct resource allocation, the ability of resources to meet objectives, and the presence of discretionary budgets or concealed margins.

Operating and capital expenditure

The third term of reference for expenditure budgets applies to operating and capital expenditure. Operating expenditures are the cost of the resources needed to run an organisation. Examples include employee salaries and fuel bills. Capital expenditures are all costs related to fixed assets such as used and new buildings and equipment. Further examples of capital expenditure items are anything that organisations could use for a number of years without replacing such as computer hardware and furniture.

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About the Author

Kevin Watson has been a full-time writer and copy editor since 2006. He specializes in UK business and technology, and his articles include an award-winning piece for "Communicator" magazine. Watson is a qualified technical writer. He also has a master's degree in strategic management from Middlesex University.

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