What Is Meant By Budgetary Control System?
Budgetary control is basically a way of evaluating different kinds of results with the predefined budgeted figures for a company for the upcoming period and set of standards. Then comparing the budgeted figures with the actual performance in order to calculate the different deviations and variances. But at first, budgets are prepared, and then results are recorded.
Comparing the budget with the actual figure will help the management for the evaluations of different shortcomings and inadequacies and then take necessary measures at the right time Budgetary Control System is a process that is always continued. And is a great aid in planning and coordination.
Economics discussion states the following about the budget,
“A budget is a numerical statement expressing the plans, policies, and goals for a definite future period. Budgeting means the process of preparing budgets. Budgetary control is a system of controlling costs which includes the preparation of budgets, co-ordination the departments and establishing responsibilities, comparing actual performance with the budgeted; and acting upon results to achieve maximum profitability. While defining a budget, the CIMA Official Terminology mentions that “a budget provides a focus for the organization, aids the co-ordination of activities, and facilitates control. Planning is achieved by means of a fixed master budget, whereas control is generally exercised through the comparison of actual costs with a flexible budget.”
Primary Elements Associated With The Budgetary Control
There are some primary elements which are associated with the budgetary control. Which are given as under.
Budgetary Control Organization
The first one is called budgetary control organization a complete organization is a primary element for the successful preparation maintenance and administration of the project. A committee advising the budget is formed which combines heads of different departments and all those heads are given the responsibility of guaranteeing the proper implementation of the departmental budgets that have been allocated to them. The CEO or the chief executive of the company is the head in charge of the budgetary system. He deploys a budget committee for the preparation of a realistic budget. There is also a budget officer that facilitates the budget committee. The coordination of budgets between different departments.
The second main element of budgetary control is a budget center. Budget Centre is a place in Organization in which the budget is prepared. A budget Centre Can Be Anything it could be a department section, a part of the department. The budget centers are responsible for covering different parts of the organization. They are also very vital for cost control purposes and the performances of different departments. It becomes easier for an organization if different budget centers are made
Another main aspect of budgetary control is a budget manual. It is basically a document that showcases the duties and responsibilities of the executive personal associated with the budget. It also showcases the relations between different functionaries.
There is also a budget committee that is involved with budgetary control. If we talk about a small scale organization, The accountant is held accountable for the preparation and implementation of the budget. If we are talking on a larger scale A committee is made which is called a budget committee. The heads of the various department which are present in the organization are the members of this committee and the committee is held accountable for the preparation and execution of the budget and the budget officer acts as a facilitator of this committee.
The budget period is also one of the important aspects of budgetary control it is basically the length of time in which the budget is supposed to be prepared and implemented. It is dependent upon the various number of factors and it is different for different kinds of this industry or it also is different for the same.
Planning Tools Used For Budgetary Control
Budgetary control is basically a system that is implemented for the evaluation and monitoring of the process of an organization. Some of the planning tools used for budgetary control are financial budget, operating budget, and non-monetary budget which is defined in detail as under.
The first one is called a financial budget. A financial budget showcases where the organization is supposed to get its cash for the upcoming days and how the company is planning for its expenditure. The sources of cash include various kinds just like sales revenue, sales of assets, the issuance of stocks, and loans. the cash is then used for buying new assets thing that Spencer's repairing that Entertains the shareholder’s financial budgets are further divided into the following types, which is called cash budget, capital expenditure budget, and the balance sheet budget.
A cash budget is an important tool in a way that provides an upper hand to Enterprise and it takes care of the incoming and outgoing cash into monthly weekly or even daily periods so the organization is able to meet the needs and carry out necessary expenditures. the cash budget also showcases the extra cash Which enables an organization to do the profit-making investment.
Capital Expenditure Budget
Capital expenditure budget also falls in the category of financial budget and guys it focuses on major assets like plant and machinery. Organization gets such assets by lending a significant amount. Every business either large or small pays attention to such a budget because there is a large investment. Which directly linked with capital expenditure.
Balanced Sheet Budget
The other kind of cash budget is called a balance sheet budget and it shows what the organization balance sheets are going to look like if the other budgets are met.
The operating budget is a showcasing of the organization’s pre-planned operations for a specific period they are further divided into the following types.
Sales Or Revenue Budget
The first one is called sales or revenue budget. The revenue budget addresses the income that an organization is expecting to receive from normal operation. It helps the manager in seeing the future financial aspects of the organization.
The Other type of operating budget is called the expense budget And it demonstrates. the forthcoming expenses of the organization in a specified period of time it also demonstrates the fourth coming expenses. So the organization is able to prepare for them.
Project budget the project budget defines the differences which lie between sales revenues and expenses if the figure of profit is small some actions can be taken to increase the sales purchase or it is required to cut the expense budget
Non-monetary budgets is defined in non-financial sales and revenue terms as profit.
Fixed And Variable Budgets
Also, another kind of budget which are called fixed and variable budgets. The first one is called the fixed cost. A fixed cost can be the salary of the employees there then comes the variable cost. They vary with the scope of operation which can be the raw materials or resources being used in the production. Then there is also another type of fixed and variable budgets which are called semi-variable cost they are really hard to predict because of their semi varying nature.
Functions Of Budgetary Control
They are various functions of budgetary control some of them were given as under
Increases The Profit
One of the main functions of budgetary control is to increases profit. It makes use of adequate planning and coordination and Sets a course of action for maximizing the profit. It provides a proper upper hand over different capital and expenditure of the revenue. And they are used in the best way possible.
Coordination Between Departments
Coordination between departments and the flow of communication can be such a hectic task. It is one of the objectives of the budgetary control to keep the working of different departments properly even and coordinated. As the budgets of various departments are highly dependent on each other the coordination among them is very necessary for achieving the predefined budget targets.
Expenditure In A Systematic Way
One of the primary functions of budgetary control is to do the expenditure in a systematic way and also In an economical way. All the finances are used in an optimized way and the benefits will also serve the industry as well as the national economy and all the wastage that is associated with it will be eliminated.
Evaluation Of The Performance
Budgetary control is a great way to evaluate performance. The budget targets are used in comparison with the actual result and all the derivations are determined and the performance that is associated with each department is notified to the top management.
Cost-Accounting states the following objectives regarding the budgetary control
- Aid the planning of annual operations
- To co-ordinate the activities of the various parts of the organization and to ensure that the parts are in harmony with each other
- To communicate plans to the various responsibility center managers,
- To motivate managers to strive to achieve the organizational goals,
- To control activities,
- To evaluate the performance of managers.”