BUDGET AND BUDGETARY CONTROL

INTRODUCTION: For effective running of a business, management must know: where it intends to go i.e. organizational objectives how it intends to accomplish its objective i.e. plans whether individual fit in the overall Click to edit Master subtitle style plans organizational objective. i.e. coordination whether operations conform(Match)to the plan of operations relating to that period i.e. control Budgetary control is the device that a company uses for all these purposes.

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WHAT IS A BUDGET?
A plan expressed in money. It is prepared and

approved prior to the budget period and may show income, expenditure and the capital to be employed. May be drawn up showing incremental effects on previous budgeted or actual figures, or be compiled by Zero-based budgeting. beginning of the year, to plan the profit and loss account for the year and to aim for definite B/S at its end, instead of relying upon chance.

In simple terms , budgeting is an attempt, at the

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WHAT IS BUDGETARY CONTROL?

Budgetary control is the use of the comprehensive

system of budgeting to aid management in carrying out its functions like planning, coordination and control.

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This system involves

Division of organization on functional basis into different sections known as a budget centre. Preparation of separate budgets for each budget centre. Consolidation of all functional budgets to present overall organizational objectives during the forthcoming budget period. Comparison of actual level of performance against budgets. Reporting the variances with proper analysis to provide basis for future course of action.

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This budget gives an estimate of the anticipated receipts and payments of cash during the budget period.

CASH BUDGET:
Cash budget makes the provision for minimum cash

balance to be maintained at all times.

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FIXED BUDGET:
This is defined as a budget which is designed to remain

unchanged irrespective of the volume of output or turnover attained.

This budget will, therefore, be useful only when the actual

level of activity corresponds to the budgeted level of activity.

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FLEXIBLE BUDGET:

CIMA defines this budget as one which, by

recognising the difference in behaviour between fixed and variable costs in relation to fluctuations in output, turnover or other variable factors such as number of employees, is designed to change appropriately with such fluctuations.

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ZERO BASE BUDGETING:

The zero base budgeting is not based on the incremental approach and previous figures are not adopted as the base. Zero is taken as the base and a budget is developed on the basis of likely activities for the future period. A unique feature of ZBB is that it tries to help management answer the question, Suppose we want to start our business from scratch, on what activities would we spent out money and to what activities would we give the highest priority?

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