Budgetary control is a system of controlling expenditure and income uses by the management of a business.
If you’re asking what is budgetary control, that’s a good definition of what is all about. The system of controlling income and expenditure.
It has been widely accepted as management techniques which are aimed at controlling the operations of an enterprise towards the realization of predetermined objectives.
Each department in the business forecast it’s expenditure or income for the coming financial period.
These forecast or budgets are scrutinized and approved at top management level, so that a provisional profit and loss account for the coming period can be drawn up.
If necessary expenses should be checked, including operation policies revised.
what is budgetary control
A budget is a simple tool, a financial plan which an administrator uses to plan profit for profits by anticipating the revenues and expenditure of funds.
Budgetary control on its own is a system of controlling expenditure and income uses by the management of a business.
You can as well say that it is a method of management control and accounting, by which budgets are established, and by forecasting the activities beforehand to the maximum extent and a constant comparison is made between the actual results and the budgeted figures.
By adopting budgetary procedure, management hopes to guide the operation of the organisation to a predetermined and a given level of profit on a certain volume of operations.
Without a budget, management could never be certain whether operations were going successfully.
Essential steps in budgetary control
There are up to six essential steps in budgetary control and they are as follows;
1. Prepare the budget and ensure that it is attainable and should not be overestimated or should underestimated.
2. Motivate the staff who are going to implement the budget.
3. Monitor the budget.
4. Report deviations.
5. Evaluate performance to ascertain whether the budget was realized, surpassed or unrealized.
6. Review the budget based on the performance evaluation.
So these are the essential steps to take when preparing for budgetary control in a firm or organization.
Budget training as the case may be, has to be undertaken annually by the organisation to enable the staff perceive the human implications of the budgetary control system.
In other words, to be able to prepare workable budget following the errors noticed in the past budgets by the management.
Finally, a budget begins with identifying and listing monthly income and expenses, and which instantly shows people how money flows in and out of their daily lives.
A carefully planned and realistic budget is like a road map.
Without the map , your driving is lost as the map ensures you reach your destination safely and on time.
This is exactly how budget system or budgetary control works for an organization or a firm.
Once established, a budget should be revised at least once a month to ensure staying on the right track.
A budget process in an organization or a private sector starts with income unlike in the government sector which starts with expenditure for obvious reasons.
Government is not looking for profit but the private sector seeks for profit. Government is interested in taking care of her citizens welfare.
The budgeting process in the private enterprise involves considerable detail and time consuming paper work.
All the department of an enterprise take part in budgeting process.
The more complex and detailed the budget is, the more time it required for preparation.
There is always a point where additional information in the budget is unwarranted in the light of the additional costs incurred, as compared with benefits to be realized from it.
Advantages of budgetary control
1. It helps to make optimum utilization of the organization’s resources in order to increase productivity and profitability.
2. Budgetary Control helps in ascertaining the goals to be achieved over the accounting period and the policies that are to be implemented for the attainment of these objectives.
3. It makes sure that the required corrective steps will be taken at the right time when there are deviations from the budgeted targets and if that cannot be implemented then the plan is revised considering all the factors.
4. To monitor that the firm is not deviated from the path of its long term objectives, without being affected by contingencies.
5. To provide a logical basis for the revision of present and future policies.
Objectives of budgetary control
Some objectives of budgetary control include the followings;
1. Motivation: Budgetary control helps in encouraging managers to carry out in line with the organization objectives.
2. Adequate Control: Control is necessary to ensure that plans and objectives as laid down in the budgets are being achieved.
Control, as applied to budgeting, is a, systematized effort to keep the management informed of whether planned performance is being achieved or not.
3. Effective Co-ordination: Co-ordination is a managerial function under which all factors of production and all departmental activities an balanced and integrated to achieve the objectives of the organization.
4. Adequate planning: Business requires planning to ensure efficient and maximum use of their resources. The first step in planning is to define the broad aims and objectives of the businesses.
The benefits of budgeting control is presently been used as an essential tool for planning the limited resources in any organization as well as the economy in general.
Reasons some organisations do not use the types of budgets are;
The problem of budgets is that they commit the firm to expenditures before the actual revenue develops.
Another is Size of the organisation. Some organization administrators think that their organization are too small to have any meaningful grouping of sales and costs.
Some critics say that budgets lead to waste, because the various departments feel it is necessary to spend budgeted fund regardless of the need.
The criticism of waste is essentially a reflection of weakness caused by inflexibility in budgeting.
Some benefits of budgeting includes Provides Control of Expense Revenue Ratio: In operating a business, an important goal is to maintain the desired relationship between expenditure and income.
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