Papers in Tax

CHAPTER 27

Budgeting and Budgetary Control

Introduction

Budgeting has come to be accepted as an efficient method of short-term planning and control. It is

employed, no doubt, in large business houses, but even the small businesses are using it at least in some

informal manner. Through the budgets, a business wants to know clearly as to what it proposes to do

during an accounting period or a part thereof. The technique of budgeting is an important application of

Management Accounting. Probably, the greatest aid to good management that has ever been devised is the

use of budgets and budgetary control. It is a versatile tool and has helped managers cope with many

problems including inflation.

DEFINITION OF BUDGET

The Chartered Institute of Management Accountants, England, defines a 'budget' as under:

" A financial and/or quantitative statement, prepared and approved prior to define period of time, of

the policy to be persued during that period for the purpose of attaining a given objective."

According to Brown and Howard of Management Accountant "a budget is a predetermined statement

of managerial policy during the given period which provides a standard for comparison with the results

actually achieved."

Essentials of a Budget

An analysis of the above said definitions reveal the following essentials of a budget:

(1)

It is prepared for a definite future period.

(2)

It is a statement prepared prior to a defined period of time.

(3)

The Budget is monetary and I or quantitative statement of policy.

(4)

The Budget is a predetermined statement and its purpose is to attain a given objective.

A budget, therefore, be taken as a document which is closely related to both the managerial as well as

accounting functions of an organization.

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A Textbook of Financial Cost and Management Accounting

Forecast Vs Budget

Forecast is mainly concerned with an assessment of probable future events. Budget is a planned

result that an...