BUDGETARY CONTROLIN BUSINESS OPERATIONS
The long-range as well as the day-to-day business operations are planned in accordance with the expectations of the future. Business planning is an essential feature of all progressive managements. Much of the planning in business boils down to the quantitative figures and those related to the profit realization into the rupee values expressed in terms of costs. The quantitative sketch of the business operations over a specified period of time is a budget.
A budget is a planning tool for shaping profits and economic growth of an enterprise Most of the planned activities are expressed in the quantitative terms in some organized form which is known as a budget.
A budget is also considered as a control technique because budget sets the pre-operation quantitative targets with which the actual performance data are compared and any positive or negative variations between actual and budgets are ascertained and they are analyzed for control purposes. Thus, a budget is a management tool which incorporates organizational and financial plans, analyses the behavior of various costs, sets the objectives and evaluates the performances.
The budget expresses the responsibilities delegated to the various organizational sub-division of a company. It spells out quantitatively what is expected of each member of management at every level in terms of expected goals and the cost expected to be incurred to accomplish the tasks assigned. The accounting and budgeting are closely related. In fact, budget uses the language of accounting and in a real sense it gives added purpose to accounting by increasing its effectiveness in day-to-day control of business operations.
The accounting system and budgeting are built around the same organizational structure and both are information systems concerned with same operations and financial situations. Accounting reports quantify information on actual past events and conditions while budgets reflect what those values were expected to be and what is expected in the future. All budget data are arranged to conform with the existing accounting system or to agreed changes, in order to make possible the periodic comparison of actual performance and projected figures.
The various terms, budget, budgeting and budgetary control are defined as under:
1. Budget: A budget is a plan which shows how the resources will be acquired and used over a period of time. According to Dickey â€œa budget is a written plan covering projected activities of a firm for a defined time period.â€? Heiser defines budget as â€œan overall blueprint of a comprehensive plan of operations and actions expressed in financial terms.
Thus, the following characteristics of a budget should be noted:
a. It outlines the projected activities;
b. The expressions are made in quantitative terms, and in most of the budgets in financial terms i.e. rupee value, and
c. It relates to a fixed periodicity say, a day, week a month, a year etc.
2. Budgeting: Budgeting is a term which is used to describe the act of preparing the budget.
According to the terminology of Cost Accountancy, Institute of Cost and Works Accountants, UK., budgeting refers to â€œthe establishment of budgets relating to the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results either to secure by individual action, the objective of that policy or to provide a basis for its revision.
3. Budgetary Control: When budgets are used as a means for the control of various business activities, such techniques are treated as â€œbudgetary controlâ€?
a. Budgetary control is defined as â€œthe exercise by line management of control over costs through continuous appraisal of actual expenditure, using as a guide the planned costs as expressed in Budget.â€?
b. The interrelationship of budget, budgeting and budgetary control is well explained in the following definitions:
A plan showing how resources will be required and used over a specified time interval is called a budget. The act of preparing a budget is called budgeting, and the use of budget as a means of controlling activity is called budgetary control.