Meaning or Budget: The word Budget is derived from a French term `Bougette’ which denotes a leather pouch in which funds are appropriated for meeting anticipated expenses. The same meaning applies to the business management. A ‘budget’ is a quantitative expression of plan of action. In another words, a budget is a numerical statement expressing the plans, policies and goals of the enterprise for a definite period in the future. It is a plan, laying down the targets to be achieved within a specified period.
It is a final and approved shape of forecast. Forecasts are statements expressed in quantitative or financial terms and indicate probable production, sales, costs or other expenses etc. When forecasts are approved by the management as a tentative plan for the future they become ‘budget’. Here are five important definitions of a ‘budget’.
Definitions of Budget
(1) budget is a predetermined statement of management policy during a given period which provides a standard for comparison with the results actually achieved. —J.L. Brown and L.R. Howard
(2) Budget is an estimate of future needs arranged according to an orderly basis, covering some or all of the activities of an enterprise for definite period of time.–George R. Terry
(3) A budget is the expression of a firm’s plan in financial form for a period of time into the future.- J. Fred Heston
(4) The budget is a formal statement of management plans and policies for a given period to be used as a guide or blueprint in that period.
(5) A budget is a financial or quantitative statement prepared prior to a definite period of time, of the policy to be pursued during that period for the purpose of attaining a given objective.– ICWA England
Thus we see that a budget is a predetermined detailed plan of action developed as a guide for future operations. A budget is both a ‘plan’ as well as a ‘control tool’. When we say it as a plan of future operations, we refer it as a plan; when we use it as a basis for subsequent evaluation of performance it becomes a control device.
Thus, budget is mainly concerned with policy-making. it is an instrument of plan as the making of budget is nothing else than advance planning. It is equally an instrument of control as it fixes the individual responsibility for fulfilling the plan. It is an instrument of delegation without loss of control also.
Meaning of Budgetary Control:
Budgeting is the process of preparing budgets and ‘budgetary control‘ is the technique of managerial control through budgets. The term ‘budgetary control’ applies to a system of management and accounting control by which all operations and output forecast as far as ahead as possible and the actual result, when known, are compared with the budget estimates.
Thus, the term `budgetary control‘ is designed to evaluate the performance in terms of goals budgeted through budget reports. Here are some important definitions of `budgetary control‘
Definitions of Budgetary Control
(1) “Budgetary control is a system which use budgets as a means of planning and controlling all aspects of producing and/or selling commodities or services.” –J. Batty
(2) “Budgetary control is the planning in advance of the various functions of business so that the business as a whole can be controlled.”
(3) “Budgetary control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.” —Brown and Howard
From a careful analysis of above definitions, the following characteristics of budgetary control come out.
(i) Planning : It implies the planning of activities for each department. After planning the forecasts are made and budgets are finalized.
(ii) Co-ordination : It involves the co-ordination among various departmental plans and budgets and then preparation of a master budget for the whole organization.
(iii) Recording : It involves recording of actual performance for the sake of comparison and control.
(iv) Comparison : It is an essential future of control system. It involves the comparison between budgeted standards and actual performance, deter-mining deviations, if any and their analysis.
(v) Appraisal and Follow up : After an analysis into the probable reasons of deviations the follow-up action is taken. It involves the necessary steps to be taken in order to improve the situation and prevent further deviations.
