The Difference Between a Budget and a Fiscal Plan

The terms “budget” and “fiscal plan” (or balance sheet) are both used in the field of financial management. Although these two concepts are closely related, there are key differences between them in terms of content and objectives.

One of the most significant distinctions is that a budget reflects the actual financial situation at a specific point in time and is based on historical data, whereas a fiscal plan (muwāzana) focuses on future planning and setting financial goals for the upcoming period.

Definition of a Budget

A budget can be defined as a financial plan that outlines how financial resources will be used over a specific period—typically one year.

The main goal of the budget is to determine expected revenues and expenses for an individual or organization by summarizing the company’s assets and liabilities.

The most common financial statements used in budgeting include:

• The balance sheet,

• The cash flow statement, and

• The income statement.

The process of preparing a budget generally involves:

1. Listing the company’s assets and dividing them into fixed, current, and other categories.

2. Adding a section for liabilities, ensuring all debts are accurately recorded.

A well-prepared budget serves as a tool for planning, setting financial priorities, and allocating resources among various activities.

It is also used to monitor performance and evaluate the extent to which financial goals are achieved over the designated period.

Definition of a Fiscal Plan (Muwāzana)

A fiscal plan represents the future projections of revenues and expenses, based on historical performance and other influencing factors.

The main purpose of a fiscal plan is to forecast future financial performance to support effective decision-making. It translates long-term strategic goals into annual operational programs.

The process of preparing a fiscal plan typically includes:

1. Preparation phase

2. Approval phase

3. Implementation phase

4. Reporting phase

A fiscal plan also involves analyzing past trends and estimating how economic conditions or future events may affect financial outcomes. It is considered a part of the organization’s overall strategic planning process, not merely a financial or accounting tool.

In Summary

In general, a budget focuses on monthly or annual planning and monitoring of income and expenses,

while a fiscal plan (muwāzana) relies on advanced forecasting of future performance based on data analysis and trend evaluation.