jagomart
digital resources
picture1_Journal Pdf 85772 | Ijcbs 04 01 002


 169x       Filetype PDF       File size 0.22 MB       Source: iaeme.com


File: Journal Pdf 85772 | Ijcbs 04 01 002
a study on budget and budgetary control prof mubina shaikh mumbai university mumbai india international journal of commerce business studies volume 4 issue 1 january march 2016 pp 14 20 ...

icon picture PDF Filetype PDF | Posted on 14 Sep 2022 | 3 years ago
Partial capture of text on file.
             
                  A Study on Budget and Budgetary Control 
             
                                     Prof. Mubina Shaikh 
                                 Mumbai University, Mumbai, India 
             
                        International Journal of Commerce & Business Studies    
                         Volume 4, Issue 1, January-March, 2016, pp. 14-20  
                      ISSN Online: 2347-2847, Print: 2347-8276,  DOA: 07052016 
                                © IASTER 2016, www.iaster.com                      
             
            ABSTRACT  
             
            Budgetary control is a system in which income and spending are compared with a company's budget 
            to make sure the plans are being followed. It allows companies to adjust their spending as necessary 
            to  make a profit. Every company has a budget, and at times, that budget needs to be revised to 
            account for spending and an increase or decrease in income. In essence, budgetary control compares 
            actual results  with  budgets.  If discrepancies are  found,  key  players  within  a  company  have  two 
            choices.  They  can  either  control  the  spending  of  the  company  or  revise  the  original  budgets. 
            Budgetary control helps to coordinate and organize a company's financial activities. The study of 
            budgetary  control  is  very  helpful  for  management  of  companies for  control  of their  expenditure 
            through  a  powerful  instrument  that  the  name  is  budget.  In  fact  it  will  provide  a  yardstick  for 
            measuring and evaluating the performance of individuals and their departments. 
             
            KEYWORDS:  Budget,  Budgetary  Control,  Cost,  Financial  Planning,  Financial  Performance, 
            Performance Measurement, Monitoring, Evaluating, Motivation, Productivity. 
             
            1. INTRODUCTION  
             
            Budgetary control  refers  to  how  well  managers  utilize  budgets to  monitor  and  control costs  and 
            operations in a given accounting period. In other words, budgetary control is a process for managers 
            to  set  financial  and  performance  goals  with  budgets,  compare  the  actual  results,  and  adjust 
            performance, as it is needed. 
             
            You can think of a budget like a report card in school. It shows how well you performed in that 
            subject during the school year. The budget process does the same thing. Management can set goals 
            and evaluate the progress. 
             
            There are typically four steps in any budgetary control process that managers follow. First, a budget 
            needs to be created. To put it simply, a company performance budget is really just a set of financial 
            goals that management wants to achieve. These could be sales or spending goals. 
             
            Second, after the budget is created, management needs to compare, analyze, and interpret the actual 
            performance results with the budgeted goals. Management typically uses a report for this comparison. 
             
            Third, after the comparison has been made, managers need to improve the under performing operations 
            and continue to strengthen the favorable ones. The budget report easily allow managers to focus on 
            unfavorable  operations  because all  areas  that  meet  the  budget  are  marked  with  an F  for favorable 
            variance while the poorly performing areas are marked with a U for unfavorable variance. 
                                              14 
                International Journal of Commerce & Business Studies                          ISSN   (O) 2347-2847 
                Volume-4, Issue-1, January-March, 2016,  www.iaster.com                               (P)  2347-8276 
                 
                The fourth and final step usually occurs at the end of an accounting period. After management has a 
                chance to look over the entire last period, they can start making plans for the next year. For example, 
                they will most likely review the original budget that was created and why certain goals were set. Then 
                they  will  compare  the  actual  with  the  budgeted  performance  over  the  entire  period.  Lastly, 
                management will focus on how they tried to correct the problem operations and develop a plan to fix 
                them in the next period. 
                 
                1.1 MEANING OF BUDGET & BUDGETARY CONTROL 
                 
                A budget is a detailed plain of operations for some specific future period. It is an estimate prepared in 
                advance of the period to which it applies. It acts as a business barometer as it is complete programmed 
                of activities of the business for the period covered. 
                 
                Besides' budgetary control' refers to a system of management and accounting control by which all 
                operations and output are forecast as far as ahead  as possible and the actual results, when known are 
                compared with the budget estimates. Thus the term budgetary control  is designed to evaluate the 
                performance in terms of goals budgeted. 
                 
                1.2. DEFINITION OF BUDGETARY CONTROL 
                 
                The establishment  of  budgets  relating  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 objectives of that policy or to provide a firm basis of its revision. 
                 
                Or in simple words, budgetary control is implementing budgets and making managers responsible for 
                implementing it. 
                 
                “According to Brown and Howard, “Budgetary control is a system of controlling costs which includes 
                the preparation of budgets, coordinating the departments and establishing responsibilities, comparing 
                actual performance with the budgeted and acting upon results to achieve maximum profitability.” 
                 
                1.3. OBJECTIVES OF BUDGETARY CONTROL 
                 
                The main objectives of budgetary control are given below: 
                 
                1. Defining the objectives of the enterprise. 
                2. Providing plans for achieving the objectives so defined. 
                3. Coordinating the activities of various departments. 
                4. Operating various departments and cost centre’s economically and efficiently. 
                5. Increasing the profitability by eliminating waste. 
                6. Centralizing the control system. 
                7. Correcting variances from sit standards. 
                8. Fixing the responsibility of various individuals in the enterprise. 
                 
                1.4. ESSENTIAL OF BUDGETARY CONTROL 
                 
                Essentials of effective budgetary control are:  
                 
                1. Sound forecasting  
                2. Goal orientation  
                3. Proper recording system  
                4. Participation  
                                                                 15 
                International Journal of Commerce & Business Studies                          ISSN   (O) 2347-2847 
                Volume-4, Issue-1, January-March, 2016,  www.iaster.com                               (P)  2347-8276 
                 
                5. Top management support 
                6. Flexibility  
                7. Enforce timeliness 
                8. Efficient organization  
                9. Proper co-ordination  
                10. Sound administration 
                11. Constant review  
                12. Reward and punishment and  
                13. Results take time! 
                 
                1. Sound Forecasting 
                 
                The estimates for the future needs of business should be precise and accurate. 
                A scientific forecasting system gives adequate and reliable data for budgeting. 
                 
                2. Goal Orientation 
                 
                Budgets must directly flow from objectives of the enterprise, and goals of budgetary control must be 
                clearly defined. 
                 
                3. Proper Recording System 
                 
                Sound accounting procedures should be allowed for proper recording of actual operations. Unless the 
                actual performance is accurately recorded and quickly reported; the whole structure of budgeting will 
                fall. Budgeting is greatly helped if there is also the system of standard costing in use. 
                 
                4. Participation 
                 
                All individuals responsible for achieving results should be consulted in the formulation of budgets. No 
                system  of  budgetary  control  can  succeed  without  the  mutual  understanding  of  superiors  and 
                subordinates. Participation assures full co-operation and commitment for making budgets successful. 
                Participation also makes budgets realistic and workable. 
                 
                5. Top Management Support 
                 
                Since budgeting highlights inefficiencies there is bound to be resistance. This makes it more necessary 
                that top management should believe in the importance of budgetary control. Thus the overall budgets 
                must be set and approved at the chief executive level. 
                 
                6. Flexibility 
                 
                Budgets should be flexible. If actual business conditions differ from what was expected, it should be 
                possible to recast the budget quickly. 
                 
                7. Enforce Timeliness 
                 
                Budgets  must  be  prepared  so  as  to  be  ready  before  the  period  to  which  they  relate.  Moreover 
                sufficient time should be allowed for the budget programme to develop and reach near perfection. 
                 
                8. Efficient Organization 
                 
                A  good  organisation  structure  is  necessary  for  success  in  budgeting.  There  should  be  fixed 
                responsibility centre’s, budget committee and budget controller. 
                 
                 
                                                                 16 
                International Journal of Commerce & Business Studies                          ISSN   (O) 2347-2847 
                Volume-4, Issue-1, January-March, 2016,  www.iaster.com                               (P)  2347-8276 
                 
                9. Proper Co-ordination 
                 
                The budget plans must be properly co-ordinate in order to eliminate bottlenecks. Individual budgets 
                should be co-ordinate with one another. 
                 
                10. Sound Administration 
                 
                Budgets cannot replace good management. Budgets should be administered efficiently by responsible 
                executives. 
                 
                11. Constant Review 
                 
                Constant review of the budgets is necessary so as to prevent them from degenerating into license for 
                spending the full budgeted amount even though it may not be necessary. 
                 
                12. Reward and Punishment 
                 
                The concerned employees should be suitably rewarded for performance as per the budget. But slack 
                employees should not be allowed to go unpunished. 
                 
                13. Results Take Time 
                 
                The budgetary control is an efficient tool to control performance. But it requires time to show results. Those 
                who administer budgetary control should have high degree of knowledge and experience in the field. 
                 
                1.5.  ADVANTAGES OF BUDGETARY CONTROL 
                 
                Budgetary control has become an important tool of an organization to control costs and to maximize 
                profits. Some of the advantages of budgetary control are :- 
                 
                1)  It defines the goals, plans and policies of the enterprise. If there is no definite aim then the efforts 
                    will be wasted in achieving some other aims. 
                2)  Budgetary control fixes targets. Each and every department is forced to work efficiently to reach 
                    the target. Thus, it is an effective method of controlling the activities of various departments of a 
                    business unit. 
                3)  It secures better co-ordination among various departments. 
                4)  In case the performance is below expectation, budgetary control helps the management in finding 
                    up the responsibility. 
                5)  It helps in reducing the cost of production by eliminating the wasteful expenditure. 
                6)  By  promoting  cost  consciousness  among  the  employees, budgetary  control  brings  in 
                    efficiency and economy. 
                7)  Budgetary control facilitates centralized control with decentralized activity. 
                8)  As  everything  is  planned  and  provided  in  advance,  it  helps  in  smooth  running  of  business 
                    enterprise. 
                9)  It tells the management as to where action is required for solving problems without delay. 
                 
                1.6.  LIMITATIONS OF BUDGETARY CONTROL 
                 
                Despite of many good points of budgetary control there are some limitations of this system. 
                The following are the limitations of budgetary control: 
                 
                1)  It is really difficult to prepare the budgets accurately under inflationary conditions. 
                2)  Budget involves a heavy expenditure which small business concerns cannot afford. 
                                                                 17 
The words contained in this file might help you see if this file matches what you are looking for:

...A study on budget and budgetary control prof mubina shaikh mumbai university india international journal of commerce business studies volume issue january march pp issn online print doa iaster www com abstract is system in which income spending are compared with company s to make sure the plans being followed it allows companies adjust their as necessary profit every has at times that needs be revised account for an increase or decrease essence compares actual results budgets if discrepancies found key players within have two choices they can either revise original helps coordinate organize financial activities very helpful management expenditure through powerful instrument name fact will provide yardstick measuring evaluating performance individuals departments keywords cost planning measurement monitoring motivation productivity introduction refers how well managers utilize monitor costs operations given accounting period other words process set goals compare needed you think like re...

no reviews yet
Please Login to review.