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Making a Budget


Part 3: One Last Thing

A company will also keep a budget in order to see whether spending money on things like advertising is a good idea. Take a look at the graphic below. It is the same as the one above, with one important addition: It has a line for advertising. It also has a different number for sales income on March 31.

First National Toy Company

Date
Expenses
Income

3-24

$400

3-25

$400

3-26

$400

3-27

$600

3-28

$800

3-29

$800

3-30

$1500

3-31

Advertising $500

$2500

3-31

Salaries $3,000

3-31

Rent $1,200

3-31

Electricity $800

3-31

Insurance $950

Total

$6,450

$7,400

So the company spent $500 on advertising in March and got an extra $1,000 in sales income. It is not always the case, but you can probably say that the increase in sales came about because of the company's advertising. Maybe they advertised a toy sale or the arrival of a hot new product. Either way, they took in more money than they spent. And company managers will look at this budget and decide whether to advertise again, based on how much money they make or lose. (Of course, the only real way to know if it really was the advertising alone that resulted in the increase in sales is to try again the next month. If the other expenses are the same and the income is lower, then the advertising in March probably led directly to the increase in sales in March.)

For all of these reasons, keeping a budget keeps you aware of how much money you have, whether it's $20 or $20,000. Companies do it, and you can do it, too.

First page > Budget Basics > Page 1, 2, 3

Graphics courtesy of ArtToday


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