What characterizes a Balanced Budget?

A balanced budget is characterized by revenues equaling expenditures, meaning that the total amount of money that a municipality or organization takes in (revenue) is exactly matched by the total amount it spends (expenditures). This is a fundamental principle of sound financial management and is often a legal requirement for many governmental entities. A balanced budget indicates that an organization is not operating at a deficit and is maintaining fiscal responsibility. By ensuring that revenues and expenditures are equal, municipalities can better manage their financial resources and avoid excessive debt or financial instability.

In contrast, when revenues exceed expenditures, it indicates a surplus, which might allow for savings or investments but does not fulfill the criteria for a balanced budget. Similarly, if expenditures exceed revenues, it results in a deficit, which can lead to financial difficulties in the long term. The absence of allocated reserves does not define a balanced budget either; reserves can exist regardless of whether the budget is balanced or not. Therefore, the key defining characteristic of a balanced budget is that revenues and expenditures are equal.