Deficit Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Deficit, written in plain English, along with examples of how it is used.

What is Deficit?

n. Occurs when there is less income than expenditures, a shortage exists, or less is due. At every government level, unbalanced budgets with a planned year-end deficit are prohibited.

History and Meaning of Deficit

The term "deficit" refers to the situation where there is a difference between the amount of money a person or organization takes in and the amount they spend. If the expenditures are greater than the income, this leads to a deficit. Deficits can occur in both personal and governmental budgets. In government budgets, deficits may occur because of increased spending or decreased revenue from taxes.

Governments that regularly run large deficits may find it difficult to borrow money to fund their activities. Deficits can also lead to inflation if the government chooses to print more money to cover their spending. Overall, deficits are usually considered a negative occurrence and efforts are made to balance budgets and avoid deficits.

Examples of Deficit

  1. A company spent more money on advertising campaigns than it made in revenue from product sales, leading to a deficit in that quarter's financial statement.
  2. The government subsidies for healthcare were greater than the amount of revenue collected from taxes, leading to a yearly deficit.
  3. An individual's monthly expenses for rent, groceries, and entertainment were greater than their monthly income, leading to a personal deficit.

Legal Terms Similar to Deficit

  1. Budget: An estimated plan for income and expenditures over a set period of time.
  2. Debt: Money owed by an individual or organization to a creditor.
  3. Liabilities: An organization's financial obligations or debts.
  4. Insolvency: The inability to pay debts as they become due.