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When I was a new nurse manager, I had no clue that several types of budgets existed. I was truly budget naive. Since then, through many years of management, I have learned that healthcare organizations use many types of budgets. These include the following:

  • Operating budget: An operating budget is an overall plan for future operations, expressed in expenses and corresponding revenue. An operating budget is a formal quantification of an organization's goals and objectives—a road map for achieving its strategic mission. It's one of management's most widely used tools. You'll learn more about operating budgets in Chapter 5.

  • Capital budget: A capital budget is for major capital, or investment, expenditures—the purchase of new equipment, the construction of new facilities, and so on. You'll learn more about capital budgets in Chapter 6.

  • Master budget: A master budget is the budget for the entire organization.

  • Program budget: A program budget is a budget for a specific program or operational unit within the organization.

In addition, the cash budget estimates future cash receipts and payments that are tabulated to demonstrate the forecasted cash balance.

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An organization's budget is intimately tied to its strategic mission—the main reason it exists—and to the goals and objectives it establishes to accomplish that mission. Organizations must be transparent, communicating the strategic vision and mission to all constituents within the organization, to create a budget.

Operating budgets and capital budgets are further broken down into unit budgets, so nurse managers can effectively develop, monitor, and manage their own budgets. Operating and capital budgets are the two budgets that nurse managers construct and monitor most often; therefore, these are discussed in more detail throughout this book.

This chapter covers the three main components of the budget process, provides a glossary of key accounting terms, discusses responsibility center budgeting, and explains forms of budgets as well as historical budgets.

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The vast majority of budgets are constructed for a one-year time period.

Assets, Liabilities, and Equity

There are three major components to the budget process, as follows:

  • Assets: Assets are resources that are owned, usually stated as current assets, fixed assets, and noncurrent assets. Examples of current assets include cash and other assets that can be converted to cash within a one-year time period.

  • Liabilities: Liabilities are the opposite of assets. A liability is an obligation that needs to be paid. Current liabilities are obligations due to be paid within a one-year time period. Examples include wages and taxes. Long-term liabilities are obligations or debts that are not due within a one-year time period. Examples include a mortgage, a car loan, and a home-improvement loan.

  • Equity: Equity is associated with assets and liabilities. Equity is the excess of assets over liabilities. These include resources invested by the owner. Some ...

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