The Budgetary Planning and Control System
“A budgetary planning and control system may include many individual budgets which are integrated into a ‘master budget’.”
Budgeting is concerned with the implementation of long term strategic plans, by translating these long term plans into short term plans of action. A budget is a plan showing a firms short term objectives, and how management intends to acquire, use, and control the resources in order to attain these objectives. A firms budget should be comprehensive and co-ordinated. That is, it must cover the whole organisation, and as long as each individual manager seeks to fulfil his/her part of the budget, the organisation as a whole should be moving in the right direction.
Budgets are a useful planning and control device. “A Budget is a financial plan which is based on expected future activity and is used to control that activity.”[1] There are several reasons for preparing budgets. Some of these are:
1. As stated above, budgets help form comprehensive and co-ordinated plans for the future.
2. To aid planning of operations. A budget gives managers specific short term goals to pursue and achieve, and therefore forces them to think ahead.
3. The budget communicates to lower level management what is expected from them by top management. Therefore communication is facilitated.
4. When managers actively participate in the preparation of the budget, they are motivated to achieve the targets that they have set. Furthermore, this encourages an attitude of responsibility, since each manager will know that he/she is responsible for achieving the set standard. This also leads to a certain freedom of movement, within the limits of the budget, encouraging initiative and facilitating decentralisation.
5. The budget facilitates control by providing a measure for comparing actual results to desired results, and therefore helps identify problems. This also serves as a means of performing management by exception.
6. Similarly, a budget provides the means for
Budgeting is concerned with the implementation of long term strategic plans, by translating these long term plans into short term plans of action. A budget is a plan showing a firms short term objectives, and how management intends to acquire, use, and control the resources in order to attain these objectives. A firms budget should be comprehensive and co-ordinated. That is, it must cover the whole organisation, and as long as each individual manager seeks to fulfil his/her part of the budget, the organisation as a whole should be moving in the right direction.
Budgets are a useful planning and control device. “A Budget is a financial plan which is based on expected future activity and is used to control that activity.”[1] There are several reasons for preparing budgets. Some of these are:
1. As stated above, budgets help form comprehensive and co-ordinated plans for the future.
2. To aid planning of operations. A budget gives managers specific short term goals to pursue and achieve, and therefore forces them to think ahead.
3. The budget communicates to lower level management what is expected from them by top management. Therefore communication is facilitated.
4. When managers actively participate in the preparation of the budget, they are motivated to achieve the targets that they have set. Furthermore, this encourages an attitude of responsibility, since each manager will know that he/she is responsible for achieving the set standard. This also leads to a certain freedom of movement, within the limits of the budget, encouraging initiative and facilitating decentralisation.
5. The budget facilitates control by providing a measure for comparing actual results to desired results, and therefore helps identify problems. This also serves as a means of performing management by exception.
6. Similarly, a budget provides the means for
Bibliography: 1. R. Edwards & H. J. Mellett, ‘Accountancy for Banking students’, third edition, The Chartered Institute of Bankers, 1983 2. Meigs & W. B. Meigs, ‘Accounting: The basis for Business Decisions’, eighth edition, McGraw-Hill Publishing co., 1990 3. Drury, ‘Management and Cost Accounting’, fourth edition, International Thomson Business Press, 1996 4. Hermanson, J.D. Edwards & R.F. Salmonson, ‘Accounting Principles’, Business Publications Inc., 1983 ----------------------- [1] J. R. Edwards & H. J. Mellett, ‘Accountancy for Banking students’, third edition, The Chartered Institute of Bankers, 1983 [2] R.H. Hermanson, J.D. Edwards & R.F. Salmonson, ‘Accounting Principles’, Business Publications Inc., 1983, pp. 939