Learn about the importance of budgetary control, a system designed to track actual results relative to the budget to assure business success.
Meaning of Budgetary Control
Budgetary control is a system of management control over budgets to ensure the achievement of organizational objectives. It is setting a budget that is tied up in executive accountability with the requirements of the policy. It provides for a continual comparison of the actual performance to budget goals. It is to either ensure, through personal actions, that this policy is achieved, or provide the foundation on which it can be revised.
Budgetary Control System
It is a system that, although it uses financial terms as a means of expressing itself, is deeply involved in every activity of the enterprise. That is, it has as much to do with technical, productive, and business functions as with finance. It has to do, too, with taking remedial actions when needed.
Therefore, it is essential that a company employing such a system is organized with a proper accounting system. Such an organization should provide for its successful operation, and for its strategic goals.
This is indeed an application of scientific managerial techniques to the field of finance. Therefore, this requires application of the same techniques in other fields.
The key is to make sure the different functions of a business are well defined. Also, the duties of every executive should be clearly defined, to prevent any overlap in duties.
Purposes of Budgetary Control
Budgetary controls are essential for the maintenance of sound budgeting processes, as well as the success of any enterprise. To set up a plan or budget covering all activities of the firm or organization during a given time. This budget period may be of any length, but is the most common one-year period. It sets in money terms the objectives that a company is committed to achieving during this defined period, and it guarantees adequate working capital, including liquid assets, for achieving those objectives. Take remedial measures when needed.
Provide, by means of comparing actual results with those projected, a basis for evaluating the effectiveness of a firms operations, either as a whole or in relation to each function or division. It is essential to appreciate the objective of such control systems. This is necessary, if a firms balance sheet is to operate successfully and with the greatest benefit.