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BUDGETS AND NON


BUDGETARY CONTROL

INTRODUCTION

A plan expressed in monetary terms, prepared


and approved prior to the budget period and
which shows income expenditure and the capital
employed. It may be drawn showing incremental
effects on former budgeted figures or complied by
zero budgeting.

Budgets are therefore not prepared in isolation


and then filed away but are concrete components
of what is known as a budgetary control system.
Such
a
system
essentially
ensures
communication, coordination and control within
an organization. The basic functions of
management are allocation of resources,
planning and control.

BUDGETARY CONTROL
This is the establishment of a budget relating the
responsibilities of executive management to the
requirement of a policy and continuos comparison
of actual and budgeted results.
Control
should ensure that actions are
accordance with the objective of the policy in
question
Also provides a basis for its revision.

ELEMENTS OF BUDGETARY
CONTROL
Setting up budgets i.e. planned targets on
revenue, expenses, assets and liabilities relating
to the activities concerned.
Measuring actual results against the budgets on
a continuous basis
Identifying and analyzing deviations from
budgets and modifying both actual operations
and subsequent budgets.

MAIN AIMS OF BUDGETARY


CONTROL
To establish the degree of progress to the
achievement of short term plans
To allow delegation to occur without losing
overall control
To provide a measure for allowing flexibility in
operations
To establish short term plans and aid the
organizations planning process

PURPOSE OF A BUDGET

Co-ordination- Important for the achievement of


organization goals e.g.
Coordinate inputs and outputs in order to ensure
balance of efforts and effects.
Coordinate budget lines within the organization to
ensure effective implementation of plans and
monitoring of results.

PREPARATION OF THE
BUDGET
1. Identify objectives
2. Gather data about alternatives
3. Select alternative courses of action
4. Discuss the plans/activities and allocate the
budget.
5. Establish monitoring mechanisms.
6. Respond to problems encountered in the
previous budget.

PURPOSE CONT.
Communication:

The budget is used to


communicate plans and to control
information. Once formulated the aspects
of the plan having a bearing on a
particular division of the organization are
communicated to that division.
Motivation: The budget seeks to motivate
managers to achieve objectives and
thereby establish control within the
organization.

PURPOSE CONT.
Performance Evaluation: a budget is used to
evaluate the capability of managers to achieve
targets.
Good performance is associated with achieving
better performance targets set on costs of
operations and benefits to the organisation.

PURPOSE CONT.

Authorization: The budget is used to authorize


expenditure or to pursue certain initiatives once
a budget is approved:
it

becomes a permission to spend.


acceptance that either a project or activities should
commence.

DATA FOR BUDGET


PROCESS
Internal information
Production and operational information
Financial information
Research and development information
Personnel information
Sources of internal information-expected outputs
- performance targets, control and monitoring
and evaluation mechanisms.

EXTERNAL INFORMATION
Market

and competitors
Economic conditions
Industrial structure
Political factors
Technological change
Demographic trends and social factors
Government statistics, commercial data,
banks.
Media coverage, business trips,
conferences.

BUDGET COMMITTEE FUNCTIONS


Co-ordinate the preparation of budgets which
includes the issue of the budget manual
Issue timetables for the preparation of functional
budgets
Allocate responsibilities for the preparation of
functional budgets

Provide information to assist in the preparation of


budgets
Communicate final budgets to the appropriate
managers
Compare actual results with budget and the
investigate variances
Continuously assess the budgeting and planning
processes, in order to improve the planning and
control functions.

CONTENTS OF BUDGET MANUAL


Foreword
The purpose of budgetary planning and control
The objectives of various stages of the budgetary
process
The importance of budgets in the long term
planning and administration of the enterprise

Organizational structures and responsibilities


including: an organizational chart and a list of
individual holding budget responsibilities.
Principal budgets and relationships between them:
explanation of key budgets and outline of main
budgets and their accounting relationship
Administrative details of the budget preparation:
membership and terms of reference of the budget
committee, the sequence in which budgets are to be
prepared and a time-table.
Accounting procedures: name and terms of
reference of the budget officer, sample/specimen
forms and instruction for completing them,
specimen reports and account codes.
Timetable for accounting procedures: production of
reports and closing dates.