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Concept Of Budgeting

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2.1.1 Overview

(i) Concept of Budget and Budgeting

Budget:

Planning becomes a significant function of a manager. A budget is a plan to achieve desired results given the circumstances. Budget is prepared to effectively use the funds. It is a detailed plan of operations for a specific period. It is prepared based on past information and lays down the strategy to be implemented to attain the desired results.

A budget may be expressed in relation to time, such as short-term and long-term budgets; in relation to functions, such as production cost budget, administration cost budget, administration cost budget, research and development cost budget, and so on; and in relation to behaviour, such as, fixed budget and flexible budget. These are explained …show more content…

It guides managers at the time of actual implementation. Budgeting acts as a check in anticipating problems of the business and in implementing corrective measures to overcome them.

(ii) Concept of Budgetary Control

Meaning
Budgetary control is the process by which budgets are prepared for the future period and are compared with the actual performance to observe thefor finding out variances, if any. The cComparison of between budgeted figures withand actual figures will help the management to find out variances and take corrective actions without any delay.
Budgetary control system includes:
• Preparation of Budgets
• Co-ordination between the departments and establishing responsibilities
• Comparison of actual performance with that of budget and acting upon results to achieve maximum profitability
Definition of Budgetary Control
“Budgetary Control is the process of, “Guiding and regulating activities with a view to attaining predetermined objectives, effectively and efficiently”. (Source: …show more content…

Essentials of Effective Budgetary Control:
Budgetary control is successful only when certain conditions exist in the organisation. Following are the essentials required for effective budgeting:

• Support of top management: If an organisation’s budget needs to be a success, then the whole process needs to be supported by every team member in the management. Unless the management is convinced by the system, control system will not be effective.

• Participation by responsible executives: In an organisation, certain individuals are trusted with the performance of the budgets, where they should participate into setting the budget figures.

• Reasonable goals: The budget prepared should be very reasonable and realistic in nature, where the organisation can attain those goals. The responsible individuals must agree whether the budgets are reasonable and

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