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Budgeting Budgetary Control

This document discusses budgeting and budgetary control. It defines a budget as a short-term financial plan that acts as a guide to achieve predetermined targets. Budgeting is the process of preparing and using budgets to achieve management objectives. Budgetary control refers to using budgets to control organizations' activities by preparing budgets, comparing actual results to forecasts, and taking actions to address deviations from budgets. The objectives of budgetary control include planning, coordinating, controlling, communicating, motivating, and evaluating performance.

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33 views10 pages

Budgeting Budgetary Control

This document discusses budgeting and budgetary control. It defines a budget as a short-term financial plan that acts as a guide to achieve predetermined targets. Budgeting is the process of preparing and using budgets to achieve management objectives. Budgetary control refers to using budgets to control organizations' activities by preparing budgets, comparing actual results to forecasts, and taking actions to address deviations from budgets. The objectives of budgetary control include planning, coordinating, controlling, communicating, motivating, and evaluating performance.

Uploaded by

Priya Yûvã
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BUDGETING &

BUDGETARY CONTROL
Budget
 Is a short- term financial plan which acts as a guide to achieve the pre -determined
targets.
 It is a comprehensive and coordinated plan, expressed in financial terms, for the
operations and resources of an enterprise for some specific period in the future.
 It is a predetermined detailed plan of action developed and distributed as a guide to
current operations and as a partial basis for the subsequent evaluation of
performance
Budget-Definition
 The Chartered Institute of Management Accountants, London defines
budget as “a financial and/or quantitative statement, prepared prior to a
defined period of time, of the policy to be pursued during the period for the
purpose of attaining a given objective.”
 Kohler in ‘A Dictionary for Accountants’ defines budget as any financial
plan serving as an estimate of and a control over future operation, any estimate
of future costs and any systematic plan for the utilisation of manpower,
material or other resources.
Elements of Budget
1. It is a comprehensive and coordinated plan of action prepared in advance and
based on a future plan of action
2. It is a plan for the firm’s operations and resources.
3. It is based on objectives to be attained.
4. It is related to specific future period- the periodicity maybe month, quarter,
half year, a year or even more than that
5. It is expressed in monetary values (like Rupees Dollars etc) and/or physical
units (expressed as kilos or tonnes or quintals)
Reasons for producing budgets
 Aid in the planning of annual operations
 Communicate plans to different responsibility centres
 Coordinate the activities of various parts of the firm & to ensure different parts
operate in harmony with each other
 Motivate managers to strive to achieve organisation goals
 Control and evaluate the performance of managers
Budgeting
 Budgeting is the process of preparing and using budgets to achieve management
objectives. It is the systematic approach for accomplishing the planning, coordination,
and control responsibilities of management by optimally utilizing the given resources.

Elements of Budgeting:
 Clearly state the firm’s expectations and facilitate their attainability.
 Should utilize various persons at different levels while preparing the budgets.
 Authority and responsibility should be properly fixed.
 Realistic targets are to be fixed.
 A good system of accounting is also essential.
 Wholehearted support of the top management is necessary
 Proper reporting system should be introduced.
Forecast & Budgeting

Forecast Budget
Forecast is a mere estimate of what is Budget shows that policy and
likely to happen. It is a statement of programme to be followed in a future
probable events which are likely to period under planned
happen under anticipated conditions Conditions
during a specified period of time.

Forecasts, being statements of future A budget is a tool of control since it


events, do not connote any sense of represents actions which can be shaped
control. according to will so that it can be suited
to the conditions which may or may not
happen.
Forecasting is a preliminary step for It begins when forecasting ends.
budgeting. It ends with the forecast of Forecasts are converted into budgets
likely events.
.
Forecasts have wider scope, since it Budgets have limited scope. It can be
can be made in those spheres also made of phenomenon non capable of
where budgets cannot interfere. being expressed quantitatively.
 
Budgetary Control
 The use of budgets to control firms’ activities is known as budgetary control.
 It is a system in which budgets are prepared & the actual results are compared with
the forecasted one with the purpose of fixing up responsibility for the deviation.
 Budgetary Control can be defined as a system of controlling costs which includes the
preparation of budgets, coordinating the department and establishing responsibilities,
comprising actual performance with the budgeted and acting upon results to achieve
maximum profitability
 CIMA, London defines budgetary control as, “the establishment of the budgets
relating to the responsibility of executives to the requirements of a policy and the
continuous comparison of actual with budgeted result either to secure by individual
action the objectives of that policy or to provide a firm basis for its revision”
  
Elements of budgetary control:
1. Establishment of budgets for each function and division of the organization.
2. Regular comparison of the actual performance with the budget to know the
variations from budget and placing the responsibility of executives to achieve the
desire result as estimated in the budget.
3. Taking necessary remedial action to achieve the desired objectives, if there is a
variation of the actual performance from the budgeted performance.
4. Revision of budgets when the circumstances change.
5. Elimination of wastes and increasing the profitability.
Objectives of Budgetary Control

Co- Performance
Planning Control Communication Motivation
ordinating Evaluation

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