Budget control is one of the most important tools of any company; it is used as a tool of management control and derives several benefits.
FREMONT, CA: Budget control refers to the process of how well managers make use of budgets to check and control costs and operations in a given accounting period. It is a process for managers to set financial goals with budgets. To know the variation between budgeted performance and actual performance of the company budget control is set and it also helps managers in utilizing these budgets to observe and control various costs within the particular accounting period.
A proper budget is prepared after considering previous expenses and predictable expenses which are bound to occur. Mainly there are three types of budgetary controlling techniques: Financial Budgets, Operating Budget, and Non-Monetary Budgets.
Here are some of the benefits derived by an organization from an effective system of budgeting:
• Budgeting helps in achieving higher profitability by planning and controlling income and expenditure, and also acts as a guide for various management decisions.
• Proper budgeting helps in reducing the wastages and losses, by directing the resources into most productive use.
• As a coordinated exercise, budgeting joins the ideas of different levels of management in the preparation of the same.
• Budgeting is an effective means for planning and thus ensures sufficient availability of working capital and other resources.
Here are some of the limitations of the budgetary controls:
• The budget always does not guarantee a smooth future for a company because the future is unpredictable.
• It ignores several economic factors.
• Natural events like rain, monsoon, drought, and other uncontrollable factors affect the actual performance of an organization, which cannot be considered for the budget.
In order to make a sound budget control system, some of the factors are necessary, including:
• Support from top management
• Quantification of organizational goal
• Creation of responsibility center
• Good accounting system
• Creation of environment conducive to budgetary control
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