Budgetary control is the process of determining various budgeted figures for the enterprise for the future period and then comparing the budgeted figures with the actual performance for calculating variances, if any. It is a continuous process, which helps in planning and coordination. It provides a method of control too.
The Institute of Cost and Management Accountants, England defines budgetary control as “the establishment of budgets relating to the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy or to provide a basis for its revision”.
According to J.A.Scott, “it is the system of management control and accounting in which all operations are forecast and so far as possible planned ahead and the actual results compared with the forecast and planned ones”.
Thus, budgetary control involves the following:
- Establishment of budgets.
- Continuous comparison of actual with budgets for achievement of targets and placing the responsibility for failure to achieve the budget figures.
- Revision of budgets in the light of changed circumstances.
Continuously monitoring the operations to examine how the operations are carried out, whether there are any deviations, the causes for deviations and ways to rectify deviations within a week or month will be of immense benefit. Though a budget is prepared once in a year, the budgetary control process is a day-to- day, week -to week, fortnight-to-fortnight, month-to-month and quarterly-to-quarterly activity for a check on all revenues and expenditures budgeted and stated beforehand. Continuous review of the of the situation is done taking into account the actual as well as committed expenditure till date so that the goal are reached by the end of the year rather than leaving in to chance.
Difference between Budgets, Budgeting and Budgetary Control
The difference between budgets, budgeting and budgetary control can be sited.
Budgets are the individual objectives of a department, etc. Budgeting may be said to be the act of building budgets. Budgetary control embraces all and in addition includes the science of planning the budgets themselves and the utilization of such budgets to effect an overall management tool for the business planning and control. Budgetary control has become an essential tool of management for controlling costs and maximizing profits. It may be conceived as one of the supreme examples of rationality in management.
Rowland and William have differentiated the three terms as; “Budget are the individual objectives of a department, etc., where as Budgeting may be said to be the act of building budgets. Budgetary control embraces all and in addition includes the science of planning the budgets to affect an overall management tool for the business planning and control.”
- Essentials of Budgetary Control
- Objectives of Budgetary Control
- Advantages of Budgetary Control
- Limitations of Budgetary Control