Importance or advantages of budgetary control are: Budgets are based on the well-defined plans. Budgets enable the different heads to know what is expected of them.
Also according to A. Nweze in his profit planning. Budget is a plan quantified in monetary terms, prepared and approved prior to a defined period of time, usually showing planned income to be generated and or expenditure to be incurred during that period and the capital to be employed to attain a given objective.
Furthermore a budget is an attempt made at the beginning of each financial year to plan the profit and loss account for the year and to aim for a definite balance sheet. This profit planning must be a well thought- out operational plan with its financial implication expressed as both long and short range profit plans.
In any organization where budget is used as a means of profit planning many alternative plans have to be considered and the most profitable one will be adopted, because where the plan chosen in great expectations, then the best use has been made of the available resources.
On the other hand budgetary control is the establishment of policies and the periodic review or comparison of the actual result with the budgeted performances either to secure approval for individual action or to serve as a remedial course of action.
Budgetary control whereby actual state of affairs can be compared with that planned for by the management, so that appropriate action may be taken to correct adverse situation that may occur before it is too late. It is also used to fix responsibility.
A budget systems serve the needs of management in respect of the Judgments and decisions it is fruited to make and to provide a basis for the management functions of planning and control. Developing a budget is a critical step in planning any economic activity.
This includes business, governmental agencies and individuals. Therefore businesses of all types and governmental units at every level must make financial plans to carry out routine operations, to plan for major expenditures and to help in making financial decisions.
On this back ground, every organization no matter nature has a plan for the future, simply because the success of any organization depends on the level of plan that is put into the organization.
At the same time, numerous pressures in the job may impose constraints upon managers, which affect the quality of information they collect. The problem can be numerous; clearly, nothing can be forecasted with absolute certainty. No matter what financial and marking researches take place every organization has to take risks.
Though accounting information may reduce the unpredictability of event in the future. It will never eliminate it. All these can interrupt the system of budgetary control: If the actual results are completely difference from the target the budget can loose its significance as a means of control.
Whereas a fixed budget is not able to adapt to changes, a flexible budget will recognize changes in behaviour and can be amended to fall into line with changing activities. On the other hand, if a manager realizes towards the end of the year that his or her department has under spent, he or she might go on spending spree.
If budgets are imposed upon managers without sufficient consultation, they may be ignored. An appropriations budget limits expenditures to the appropriations provided in the budget. Naturally, the amounts appropriated tend to be in line with the expected revenues for the period.
Such a system provides little in the way of flexibility. It also has a serious defect because the control aspect is limited to an end-of-the period comparison of actual revenues and expenditure with those budgeted.
The fixed or fore type of budget is criticized as being a restrictive budget, which establishes expose limits that cannot be exceeded. The future cannot be certain, therefore, it is extremely difficult to forecast what will happen in future.
Hence, when circumstances that will alter the forecast materially occur, an inflexible plan propels a company into trouble. Also to authorize the plans contained in the budget so that management by exception can be practiced ability to give a subordinate a clearly defined role with the authority to carry out the tasks assigned to him.
It also assists in the focusing of attention on the contribution which may be made by each product and market to the total profit and reveals any opportunity which may be made by each product and market to the total profit and reveals any opportunity which may be made in maximizing profit.
It provides a means of ensuring that capital invested in the business is kept to a minimum level justifiable with the level of activities. It also ensures that adequate liquid resources are made available at anytime.
It defines goals and objectives that can serve as benchmarks for evaluating subsequent performance. Better control of current operations is helped by regular, systematic monitoring and reporting of activities. It regulates the spending of money and expose loss, waste and inefficiency and through this corrective action will be taken to improve the adverse situation.
It encourages management to decentralize responsibilities without losing control, especially where a company has many branch offices or factories.Definition of Control.
A control is a set of instructions that top leadership puts into place to prevent losses resulting from theft, fraud and technological malfunction. Home Free Essays Role And Significance Of Budgetary Controlrole And Significance Of Budgetary Control.
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|What is Budgetary Control? - Definition | Meaning | Example||The Importance of Budgetary Control in Management Accounting by Marquis Codjia - Updated September 26, A company needs to manage production costs and administrative expenses adequately to maximize profit levels in the short-term and long-term. Senior managers often use budgets as cost-control tools.|
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Search (No Ratings Yet). Budgetary control is the process of determining various actual results with budgeted figures for the enterprise for the future period and standards set then comparing the budgeted figures with the actual performance for calculating variances, if any. First of all, budgets are prepared and then.
Role and Significance of Budgetary Control Introduction: Enterprise is a intricate man-made jogging coupling system and a contractual connection with body; it's very necessary to the business enterprise activities of its process and implements control.
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.
What Does Budgetary Control. Budgetary control is the process of determining various actual results with budgeted figures for the enterprise for the future period and standards set then comparing the budgeted figures with the actual performance for calculating variances, if any. First of all, budgets are prepared and then.