angrybird7677 OP t1_j2dr94j wrote on December 31, 2022 at 2:37 PM

Reply to comment by cyanrarroll in ELI5: Why do companies require annual budget be spent 100%? by angrybird7677

I don't think so.... How can unspent dollar from budgeting be treated as this year's profits? Profit is the amount gained from gross revenue less expenses. If I did not sell an item, how can the saved amount from expenditure be treated as profit? And doesn't this budgeted fund come from previous years earnings? So those would have been taxed before previously. If they taxed it again wouldn't it be double taxing?

cyanrarroll t1_j2ea5en wrote on December 31, 2022 at 4:55 PM

A budget is arbitrary. We aren't talking about less goods sold in this situation, but adjusting expenses. If we can raise expenses we lower profits. Lower profits are lower taxes.

The previous years earnings are not double taxed, they are capital to use on expenses for the next year. The IRS only cares about the changes in assets from beginning of year to end of year

Edit: additionally, a project started but not completed, such as building and selling a house, or individual good sales, can be delayed until the next financial year if it is not sold or the project is completed.

stiveooo t1_j2dwoyc wrote on December 31, 2022 at 3:20 PM

you are right, the budget comes from prev year so it was already taxed, so saving money is good, thats why the stock goes up when a company decides to fire people=saving money.

But the company wants to save money but the departments want to spend it all so they dont receive less next year.

FireWireBestWire t1_j2e58wo wrote on December 31, 2022 at 4:22 PM

The budget is derived from the previous year, but the money itself is not. It's not like they set up a savings account that ended on Dec 31 that they begin drawing from on Jan 1. Tracking cash flow is a job, and it goes from month to month and week to week. And business expenses count against your income in the current fiscal year, not the previous. Depreciation is also a thing, and it's why certain items would be paid for from different funds.