BUDGETARY: Meaning of Budgetary In Accounting

BUDGETARY: Meaning of Budgetary In Accounting
BUDGETARY: Meaning of Budgetary In Accounting

To avoid some accounting problems, all organizations have started using budgeting techniques.  Budgetary control techniques are used to compare actual expenditures with budgeted expenditures, and to analyze and correct variances.

What Is Budgetary?

Budgetary is a corporation’s financial plan covering a specific future period.  It is an expression of income and expenditure over a period.  Budgets are plans that cover all functional areas of the enterprise for a certain future period.

A budget is a system related to planning and control.  Therefore, budgets also include budgetary control. In short, budgeting is about policy making, while control is the budgetary implementation of policy.

In a narrow sense, budgetary control is a cost control technique in which actual cost is compared with planned cost, and thus profit is targeted.

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What Is Budgetary Control?

Budgetary control is a system by which budgets are used as a means of planning and controlling expenditures. 

Budgeting establishes what is to be achieved and how it is to be achieved, while controlling ensures that objectives are met and that actual results do not deviate from the planned course more than necessary.

How Does It Work? 

Budgetary control is the process of determining various actual results against the planned performance of the enterprise for the future period and the established standards, and then comparing the planned performance with the actual performance to calculate the deviations, if any. 

First of all, budgets are prepared, and then actual results are recorded. Comparison of budget and actual indicators will allow management to identify discrepancies and take timely measures to eliminate them. 

Budgetary control is a continuous process that helps in planning and coordination.  It also provides a method of control.  The budget is a means, and budgetary control is the end result.

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What Are Budgetary Terms?

Budget authority, obligations, and outlays are related terms that describe funds that are provided, committed, and used for a program or activity. Authorization Acts and Appropriation Acts give the government legal authority to carry out and fund programs or activities.

Budgetary authority

Budgetary authority, often referred to as funding, is the amount of money available to a federal agency for a specific purpose.  The authority to commit to spending federal funds is given to agencies by law. 

The amount of budget authority granted can be specific—for example, when Congress provides a set amount for a program or activity—or it can be indefinite. 

For example, the federal crop insurance program uses unlimited budget authority to provide insurance products to farmers and ranchers at subsidized rates.

Obligation

After granting budget authority for a specific purpose, an agency can make an Obligation—a legal commitment.  For example, the Ministry of Defense makes a commitment when it enters into a contract for the purchase of equipment. 

Often, the funds must be paid out over a specified period—typically one or more years—although some funds are available indefinitely.  If the funds are not paid out within the specified period, they expire (or expire) and are no longer available for use.

Outlays

In general, outlays occur when a federal agency writes checks, disburses cash, or makes electronic transfers to satisfy (or discharge) an obligation.  This happens, for example, when a federal agency transfers grant funds to recipients’ accounts or the Social Security Administration pays benefits to beneficiaries.

Authorization Acts

Authorization Acts establish or extend agencies’ authority to conduct programs or activities.  Such laws define the terms of the program—often its duration and eligibility rules. 

If the authorization act provides for funding directly from the Treasury (that is, the program does not require annual appropriations), this amount is classified as mandatory spending.

Other authorizing laws establish or continue discretionary programs that receive their funding in appropriations acts. 

These authorization laws may contain language such as “there is an authorization to appropriate [a certain amount of money],” indicating that any funding for the program must be provided in subsequent appropriations acts.

Appropriation Acts

Appropriations laws provide funding for federal programs and activities by giving budget authority to federal agencies, usually by earmarking an amount of money for a given fiscal year. 

In the absence of an authorizing act, an appropriations act—by providing funding—can also authorize agencies to administer a program or conduct an activity. 

Congress may consider several regular appropriations bills in a given year or provide all discretionary appropriations in a single bill.

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What Is Budgetary Estimate?

A budget estimate is a preliminary estimate of the funds expected to be received by a company or agency, or the funds needed to complete a project. 

These estimates provide valuable information for planning purposes, but are not definitive. When final information is received, staff can update the document and determine if any changes are cause for concern. 

These documents may be made available to the public if they relate to government agencies and projects to allow members of the public to participate in the budgeting process.

In the case of an assessment of available funds, a budget estimate is usually issued by a regional government or agency. 

The document considers possible sources of funding, such as tax revenues, grants, funds from government agencies, as well as revenues from fines and fees.  This provides information on the available operating budget.

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Benefits Of Budgetary Control

Budget control has become an important organizational tool for cost control and profit maximization.  Here are some of the benefits of budget control:

  • Determines the goals, plans and policies of the enterprise.  If there is no specific goal, then efforts will be spent on achieving some other goals.
  • Budget control fixes the goals.  Each unit is forced to work efficiently to achieve the goal.  Thus, it is an effective method of monitoring the activities of different departments of a business unit.
  • It ensures better coordination between different departments.
  • If performance is lower than expected, budgetary control helps management determine responsibility.
  • It helps to reduce the cost of production by eliminating unnecessary costs.
  • By increasing cost awareness among employees, budgetary control promotes efficiency and economy.
  • Budgetary control facilitates centralized control with decentralized activities.
  • Since everything is planned and anticipated in advance, it helps the business to run smoothly.
  • It communicates to management what actions are needed to immediately resolve problems.

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Limitations Of Budgetary Control

  • In the conditions of inflation, it is really difficult to draw up budgets correctly.
  • The budget involves significant expenses that small business concerns cannot afford.
  • Budgets are drawn up for the future period, which is always uncertain.  Conditions may change in the future, which will affect budgets.  Thus, future uncertainty minimizes the usefulness of the budgetary control system.
  • Budget control is only a management tool.  It cannot replace management in decision-making because it is not a replacement for management.
  • The success of budget control depends on the support of top management.  If there is no support from senior management, it will not succeed.

Conclusion

The modern business world is full of competition, uncertainty and exposure to various types of risks.  This complexity of management problems has led to the development of a variety of management tools, methods and procedures useful for management in successful business management. 

Budgeting is the most common, useful and widely used standard planning and control tool.  Budgetary control has now become an important management tool for cost control and profit maximization. 

Costs can be reduced, losses can be prevented and the proper relationship between costs and income can be established only when the various factors of production are combined in a profitable way.

The company’s resources can be effectively used through effective management of its operations.  This requires careful planning in advance, coordination and control of activities by management.

Budgetary Control FAQs

What Is Cash Flow Control?

It is an important budget that controls the need for working capital and cash management.  Therefore, a lack of cash can harm day-to-day functioning, which is an important aspect.

What Is Capex Control?

Capex Control covers capital costs such as purchasing equipment or constructing a building.  Since it involves huge amounts of money, control here helps to eliminate waste and reduce costs.

What Is Non-Monetary Budgets?

Budgets of this type are expressed in non-financial sales or income and expenses, that is, in profit.  If the expected profit is too small, steps may be needed to increase the sales budget or reduce the expense budget.

References

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