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Objectives of a Budgeting System
- Determining specific goals of an organization
- Reducing the overall costs and minimizing wastes.
- Centralizing the control system of their company.
- Having long-term and short-term targets for achieving the pre-determined goals of an organization.
- Taking necessary actions to make derivations accurate as per established standards.
- Ensuring that enough working capital is available with the firm.
- Maximizing profits by eliminating wastes.
- After detecting the area where necessary actions are required, those problems should be solved without any postponement.
- Fixing responsibilities in various divisions of an organization.
- Determining and controlling the income and expenditure of a company.
- Installing Budgetary Control.
Effective Budgetary Control System: Steps
The steps to have successful implementation of budgetary control are-
- Organizational Structure
It is very important that a company has a well charted organization structure for effective budgetary control. A sound structure helps in assessing the responsibilities and authorities of its employees. Further, this even ensures that no conflict arises among the employees in regard to their work.
- Objectives
Before framing a budget, it is important that the targets of a certain period are set from before. Once these are laid down, it gets easier to achieve it through budgetary control system.
- Budget Centre
It is that part of a company for which the budget is made. It consists of the overall operation expenses of a company for having an effective control over costs. This centre can be either a separate unit, part of a division or a section of departments.
- Budget manual
This manual specifies the responsibilities and authorities of people who are engaged in the day-to-day operations of a company. Other than specifying the financial objectives of a particular company, it even describes the procedure which needs to be applied for making it a success. It is the job of the budget officer to prepare and maintain this financial plan from time to time.
- Budget Controller
A budget controller is one who gets appointed for administering the budget of a company. It is he who lays down the responsibilities and structure related to this budget.
- Budget Committee
To have effective budgetary control system, the organization forms a team comprising of various executives of the company known as the ‘budget committee.’ This budget committee has the responsibility of helping the controller for correct execution. It is the Chief Executive Officer who acts as the head of the budget committee.
This committee has an aim of preparing a budget which is an aggregate of financial plans produced by various departments of the company and made by their respective departmental managers.
- Period of Budget
The duration for which a monetary plan is prepared and executed is known as the budget period. This financial period varies from one company to another by depending on its specific industry and objectives.
This budget period is dependent on factors like-
- Business type
- Product type and nature
- Length of trade cycle.
- Key factors
Even termed as principal budget factor, limiting factor or governing factor, these aspects are limited in quantity. Such situations arise due to crisis situations like lack of labor, material, capital and capacity of the company.
Thus, it is important that before preparing the budget these concerns are taken into consideration for effective implementation of budgetary control in an organization.
Links of Previous Main Topic:-
- Introduction to accounting and branches of accounting
- Preparation of final accounts
- Introduction of fund flow statement
- Introduction cash flow statement
- Ratio analysis significance of ratio analysis
- Fixed assets and depreciation meaning causes objectives methods and basic factor
- Cost accounting concept objectives advantages limitations general principles and cost sheet
- Job costing
- Introduction process costing
- Activity based costing introduction concept and classification
- Introduction inventory pricing and valuation
- Standard costing introduction
- Management accounting
- Marginal costing
Links of Next Finance Topics:-
- Objectives of budgeting
- Classification of budget
- Test questions budget and budgetary control
- Introduction to responsibility accounting
- Introduction to financial management
- Introduction and types of dividend
- Concept of cost of capital
- Capitalization meaning
- Concepts of working capital
- Concept of capital expenditure
- Learning objectives and chapter outline
- Limitations of operations research
- Linear programming learning objectives and outline of chapter
