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  Budgets and Budgetary Control

Introduction to Budgets and Budgetary Control

The first significant task in front of the management is to have noticeably defined objectives. Objectives are long term and short term and they should be described in clear terms. It is essential to prepare a complete plan to transform these objectives into reality and planning with no controlling will not be effective and therefore there is a requirement of effective control system. When planning assists an organization to work systematically in the direction of achieving the objectives, controlling assists to review the progress made and to observe whether the work is progressing according to the plan or not. Budgeting is one such type of method that helps in planning and controlling. It is a method of cost accounting with the twin objectives of makes easy planning and ensuring controlling several aspects of budgets and budgetary control.

Efficient use of resources of the business needs planning. Though, Planning must be accompanied through controls. Established in advance that is why excessive costs can be detected as they take place. The problem before the management is how planning techniques are to be established, and at what costs should and can be controlled. It is solved by the most generally used instrument budget. The method of control is termed as budgetary control.

Budgetary control system is an essential part of the management control. Before embarking upon a study of budgetary control in detail, let us first understand the managerial control process, because this process implemented by budgets, is termed as budgetary control process.

Definitions of Budgets and Budgetary Control

To start with, let us try to know the definitions of budget and budgetary control. Budget has been described by CIMA U.K. like, 'A financial and/or quantitative statement prepared prior to a specific period of time, of the policy to be pursued throughout that period for the reason of achieving a specific objective.' If we analyze the definition, the following features of budget come into existence.

a. A budget is a statement that is all the time prepared prior to a specified period of time. The meaning of this is budget is all the time prepared for future period and not for the past. For instance, a budget for the year 2008-09 concerning the sales will be prepared in the year 2007-08. Another important point is that the time for which it is prepared is certain. So a budget might be prepared for next 3 years/1 year/ 6 months/1 month or even for a week, but the point is that the time frame for which it is prepared is fixed. It cannot be prepared for indefinite period of time.

b. Budget is prepared either in monetary details or quantitative details or both. The meaning of this is budget will depict the planning in terms of rupees or in quantity or both. For instance, a production budget will depict the production target in number of units and while the target units are multiplied through the anticipated production cost, it will be a production cost budget which is expressed in terms of money.

Likewise purchase budget is prepared in quantity to depict the anticipated purchases in the next year and while the quantity is multiplied from the expected price per unit, it will become a purchase cost budget which is expressed in monetary terms. A few budgets are prepared just in monetary terms, for instance, cash budget, capital expenditure budget etc.

Every organization has well specified objectives that are to be acquired in a specific span of time. It is of paramount significance that there should be systematic efforts to bring them into reality. As a part of these efforts, it is essential to create a policy and it is reflected in the budget. So if a firm has to launch a massive drive for recruitment of people, this strategy will be reflected in the manpower planning budget and other relevant budgets. So the policy to be pursued in future for the purpose of attaining well-defined objectives is reflected in the budget. Budgetary Control is in fact a means of control where the actual results are compared with the budgeted results so that suitable action may be taken with regard to any deviations among the two.

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