BUDGETING AND BUDGETARY CONTROL
Introduction
Budgeting is a short-term planning and control technique. It is the process of producing
quantitative and/or financial plans called budgets. It converts strategic plans into action plans.
The budgeting process produces budgets for the forthcoming period. It is a future-oriented
aspect of cost and management accounting.
A budget can be in the form of:
a) Quantities e.g., units of production, raw materials purchases, units to be sold,
etc.
b) Financial i.e. in monetary values e.g. cash receipts and expenditures expected
c) Both quantitative and financial
Importance of budgeting
a) Coordination- budgets are prepared at all organizational levels and for all organizational
functions. The budgeting process ultimately leads to the production of a master budget that
inter-relates all other budgets. This ensures the coordination of activities throughout the
organization.
b) Communication- budgeting is an important way of communicating the organization’s
policies and objectives between the levels of management. Each manager is charged with a
given area and he is therefore responsible for achieving the objectives of that area.
Each manager involved in implementing part of the overall plan is involved in budgeting.
This enhances communication up and down and across the organization structure.
c) Management by exception- budgeting enhances the definition and clarification of individual
management responsibilities in the budgeting process. This enhances management by
exception.
This is where a manager carries out activities as required in a plan. Only variations from
the plan are acted upon and reported to a higher level. Hence the top managers are left to
concentrate their efforts on exceptional items to the budget.
d) Control- the process of comparing actual results with the budget and reporting variations is
called budgetary control. This process helps to control expenditure and imposes financial
discipline in the organization.
Introduction
Budgeting is a short-term planning and control technique. It is the process of producing
quantitative and/or financial plans called budgets. It converts strategic plans into action plans.
The budgeting process produces budgets for the forthcoming period. It is a future-oriented
aspect of cost and management accounting.
A budget can be in the form of:
a) Quantities e.g., units of production, raw materials purchases, units to be sold,
etc.
b) Financial i.e. in monetary values e.g. cash receipts and expenditures expected
c) Both quantitative and financial
Importance of budgeting
a) Coordination- budgets are prepared at all organizational levels and for all organizational
functions. The budgeting process ultimately leads to the production of a master budget that
inter-relates all other budgets. This ensures the coordination of activities throughout the
organization.
b) Communication- budgeting is an important way of communicating the organization’s
policies and objectives between the levels of management. Each manager is charged with a
given area and he is therefore responsible for achieving the objectives of that area.
Each manager involved in implementing part of the overall plan is involved in budgeting.
This enhances communication up and down and across the organization structure.
c) Management by exception- budgeting enhances the definition and clarification of individual
management responsibilities in the budgeting process. This enhances management by
exception.
This is where a manager carries out activities as required in a plan. Only variations from
the plan are acted upon and reported to a higher level. Hence the top managers are left to
concentrate their efforts on exceptional items to the budget.
d) Control- the process of comparing actual results with the budget and reporting variations is
called budgetary control. This process helps to control expenditure and imposes financial
discipline in the organization.
