What is a budget?

A budget is fundamentally a financial plan that outlines expected revenues and expenditures for a specific period, usually within a fiscal year. It serves as a roadmap for managing an organization's finances, allowing it to allocate resources efficiently and anticipate future financial performance. Budgets are essential for both short-term and long-term planning, helping organizations to set performance targets, control costs, and make informed decisions about resource allocation.

By clearly outlining anticipated income and expenses, a budget enables organizations to monitor their financial health, ensure that they operate within their means, and adjust their strategies as necessary based on changing circumstances. This proactive approach is vital for effective management accounting, as it directly influences an organization's ability to achieve its financial goals and maintain operational stability.

The other options do not capture the key attributes of a budget: it is not a legal document that governs company policies; it doesn’t primarily serve as a report on past performance; nor does it function as a market trends forecast. Instead, the core function of a budget is its role as a financial plan focused on future income and expenditure, making option B the correct definition.