Budgeting and budgetary control

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<ul><li> 1. Budgeting And Budgetary Control </li> <li> 2. Budgetary System Budgetary system comprises of two components: budget planning and budgetary control. Budgetary Planning Definition: process of preparing detailed, short term plans known as Budget for the functions, activities, and departments of the organisation thus converting the long term corporate plan into action. </li> <li> 3. What is a budget? A financial plan that sets goals and allocate resources for the coming period. A financial and or quantitative statement prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective - Chartered Institute of Management Accountants (CIMA) </li> <li> 4. Corporate Planning A comprehensive and systematic process of strategic long-term planning incorporating the resources and capability of an organization taking the environment into consideration. C. P. involves series of steps which is itemized as follows: 1) SWOT Analysis 2) Planning 3) Implementation </li> <li> 5. SWOT Analysis: Identification of key internal strength and weaknesses, Opportunities and Threats Critical examination of the companys external environment in terms of current trends. Forecast of alternative consequences to the company of pursuing its current policies in the light of external situations. These alternatives can be seen in terms of risk, trends and opportunities. </li> <li> 6. C. P. Steps contd. The companys objective is reviewed and revised in the light of and thereby capitalizing on the strengths and overcoming weaknesses. Agreement and implementation of the revised plans for the achievement of the objectives set and consolidation into a corporate plan. Comparing CP and Budgetary System C.P. is long term in nature while budgetary system is short term in nature. C.P. deals primarily with planning while budgetary system relates to both planning and control. </li> <li> 7. Why budget? It compels management to plan properly the activities of an organization by looking ahead, setting targets and anticipating problems. To communicate plan of action to those affected by the budget. Development of budgets help in coordinating the efforts and activities of the different segments of the organization so as to ensure that the objective of the organization as a whole is in line with the objectives of the subunits, thereby reducing sub-optimality to the barest minimum. It makes possible the comparison of actual result with plan by establishing a system of budgetary control. It motivates employees to put in their best to ensure that the set target is achieved. </li> <li> 8. Budgetary Control Control or plans by comparing actual result against targeted plans to identify variances upon which corrective measures could be taken. the establishment of budgets relating 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 objectives of that policy or to provide a firm basis for its revision. Chartered Institute of Management Accountants </li> <li> 9. Budgetary Control Principles Establishment of a target of performance, which coordinates all the activities of the business. Accumulation of actual cost as soon as they become historic. Comparison of actual performance with target. Calculation of variances, that is, the differences between the actual performance and the target and analyzing the reasons for them. Taking remedial action where necessary to rectify the situation. </li> </ul>


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