Budgeting & Budgetary

Control
Definition & Meaning ofBudgeting
“A budget is a pre-determined statement of
management policy during a given period
which provides a standard for comparison
with the results actually.”
-Brown & Howard “Budgeting is a
preparation of comprehensive
operating and financial plans for
specific intervals of time”
-Shilinglaw
Characteristics of good Budgeting
• Good budgeting should involve persons at different levels
while preparing the budgets.
. • There should be proper fixation of authority and
responsibility.
• The target of budget should be realistic, if targets are
difficult to
be achieved then they will not enthuse the persons
.
concerned
• A good accounting system is also essential to make the
• budgeting
Budgeting successful.
system should have whole hearted support of
the top management.
. • The employees should be imparted budgeting education.
 Definition & meaning
of Budgetary
Control
“Budgetary control is a system which
uses budgets as a means of planning
and controlling all aspects of
producing/selling commodities or
services”
-J Batty

“A budget is a means and budgetary

control is the end result”
Essentials of Budgetary Control

Organization for budgetary

control.

Budget centers

Budget officers/committee

Budget manual

Budget period
 Organization chart for
Budgetary
Control
Chief
Executiv
e

Budget
Officer

Budget
committe
e
Research &
Productio Sales Financ Account Personn developme
n manage e s el nt manager
manager r manage manage manage
r r r
Requisites for Budgetary
Control System
Clarifying objectives

Proper delegation of authority & responsibility

Proper communication & budget education

system Participation of all employees

Motivation & flexibility

 Budgetary control
Limitation
Advantage
s
s
Tool for measuring Uncertain future, revision
performance required

Provides specificaims Discourages efficient persons

Creates budget consciousness Problem of co-ordination

Introduction of incentive Conflict in departments

scheme
To make COST accounting Depends on Topmanagement
more reliable
 Difference in Budget,
Budgeting, &
Budgetary Control.
Budgets are business estimates for future
period, budgeting is the process of
preparing these estimates while
budgetary control is a system of
achieving performance on the basis of
budgets.
Budget and budgeting are the parts of
planning whereas as budgetary control is
linked with co-ordination & control.
 Zero-Base Budgeting
 Zero base budgeting is the latest technique of
budgeting & it has an increased use of management
tools.
 In zero base budgeting every year is taken as a new
year and previous year is not taken as a base.
 It enables management to allocate funds.
 It improves efficiency of management and make
optimum use of resources.
 Helpful in identifying economical & wasteful areas.
 Related to organizational goals.
Process of Zero Base Budgeting

Approve
Cost decision
Benefit package &
Prioritizati Analysi Finalize Budget
on of s
Plan activities
of
action
Deter
mine
Objec
tives
 Zero Base Budgeting

Advantages Disadvantages

Efficient allocation of Non financial matters cannot

resources. be considered for cost
benefit analysis
Optimum utilization of
resources Difficulty in process of ranking
of decision packages
Enhances capability of
Managers.
It is time Consuming
Identifies & eliminates
wasteful and obsolete
operations.
 Traditional v/s Zero
Base Budgeting
Traditional Budgeting Zero Base Budgeting

• It is accounting oriented • It is decision oriented

. .

• Its approach is • Its approach is towards

. monitoring towards . achievement of
expenditure objectives
• Its focus is on increase • Its focus is on cost
. and . benefit analysis
decrease of expenditure
• It is simple to read & prepare • It is morecomplex.
. .

• Its method of preparation • Its preparation is based

. is . upon “selection of decision
based on “extrapolation” package”