Budget & Budgetary Control - Unit 5.pptx

Budget & Budgetary Control - Unit 5.pptx

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  02/20/2025 B Com- PA, SRCAS 1 Dr. P. PIRAKATHEESWARI Associate Professor of B Com – PA, Sri Ramakrishna College of Arts & Science (Autonomous), Nava India, Coimbatore – 6. Budget and Budgetary Control
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  Budget • Is ashort- 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.
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  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).
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  Reasons for ProducingBudgets • 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
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  MEANING Budgetary Control, asthe name suggests, is about controlling the budget. It guides a business toward its financial goals by setting a financial route, monitoring progress, and adjusting for unexpected expenses or changes in revenue. This ensures the business stays on track and efficiently manages its resources. Budget and budgeting are the foundation of budgetary control. Budget is the financial plan, budgeting is the process of creating it, and budgetary control is the ongoing monitoring and adjusting based on actual performance. Together, they ensure that financial goals are met. DEFINITION “The establishment of budgets, relating the responsibilities of executive to the requirements of a policy and the continuous comparison of actual with budgeted results either to secure by individual action the objectives of that policy or to provide a firm basis for its revision”
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  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.
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  BUDGETARY CONTROL • Theuse 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”.
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  STEPS IN THEBUDGETARY CONTROL PROCESS 1. Set Financial Objectives: The first step in the budgetary control process is determining the organization’s financial objectives. This might include increasing revenue, reducing costs, improving cash flow, or increasing profit margins. 2. Develop a Budget: Once the financial goals have been identified, a comprehensive budget should be developed that outlines expected income and expenditures for the budget period. The budget should be broken down by department, product, or project and realistic and achievable. 3. Implement the Budget: Once the budget has been developed, it must be implemented within the organization. This might involve communicating the budget to employees. 4. Track Performance: The final step in the budgetary control process is monitoring performance against the budget. This might involve comparing actual expenditures and revenues to budgeted amounts, tracking cash flow, and reviewing financial reports. 5. Taking Corrective Action: If the organization is not meeting its budgeted targets, it may be necessary to take corrective action.
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  OBJECTIVES OF BUDGETARYCONTROL 1. Forecast future income and expenditures to recognize potential problems and develop strategies to address them. 2. Align the activities of different departments and units to ensure everyone works towards the same goals and avoid resource duplication. 3. Set spending targets and track actual performance to identify areas of overspending and take corrective action. 4. Identify areas of resource inefficiency and implement changes in processes and procedures to save money. 5. Use resources efficiently and effectively to boost revenues, reduce costs, and enhance profits.
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  ADVANTAGES OF BUDGETARYCONTROL 1.Improved Financial Performance. 2.Better Decision-Making. 3.Increased Accountability. 4.Improved Coordination and Communication 5.More Efficient Use of Resources. 6.Reduce Waste and Fraud. 7.Improve Customer Service. 8.Enhance Investor Confidence.
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  LIMITATIONS OF BUDGETARYCONTROL 1. Budgets are based on estimates of future income and expenditures. These estimates can be inaccurate, especially in a rapidly changing business environment, leading to unrealistic and unattainable budgets. 2. Budgets are typically set for some time, such as a year or a quarter. This can make responding to unexpected events, such as a recession or a natural disaster, difficult. 3. Developing and maintaining a budgetary control system can be time-consuming and expensive. This can be especially challenging for small businesses. 4. Employees may not be motivated to support the budget if they feel it is unrealistic or unattainable. Therefore, it is important to communicate the budget to employees and explain how it is aligned with the organization’s strategic goals. 5. Departments may compete for resources and blame each other for budget overruns. It is important to create a culture of cooperation and collaboration between departments.