Presented By: Amjad Jaleel Anaz K. Bava Anoop V.g

Presented by: Amjad Jaleel Anaz K. Bava Anoop V.G

Definition By ICMA “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 attaining a given objective”

Objectives Of Budgeting • To formulate a plan of action. – depends on the policy that the business decide to execute.

• To facilitate central control. – implementation of the policy and achieving the target.

• Helps in cost control. – control of cost through comparison.

Objectives Cont… • To centralise the control system. • Fixation of responsibility of various executives in the organisation.

Characteristics Of Good Budgeting • Should involve persons at different level while preparing the budget. • Authority and responsibility should be properly fixed. • Should get the whole hearted co-operation of the top management. • The target should be realistic. • A good system of accounting is essential.

Characteristics Cont… • Employees should be imparted budget education. • A proper reporting system should be introduced.

Budget And Forecast. • Are similar to the extend that both of them give future estimates. • While forecast is an assessment of probable future events like chance of rainfall etc, budget is based on implication of a forecast and related to planned events. • Forecasting proceeds preparation of a budget as it is an essential part of the budgetary process.

Difference Between Budget And Forecast i.

Budgets are based on planning, while forecast is seldom based on planning. ii. Budget is usually prepared for pone accounting year, while forecasting may be for a very short period like a day, certain hours etc or for a long period like years. iii. In budget the results or estimates are determined in a scientific manner considering various factors involved

Difference Cont… while forecasting result is not one which is tried to attain or desired to have. iv. In budgeting the estimate is often compared with actual in order to ascertain the achievement or weakness, while there is no meaning in comparing a forecast with the actual result. v. Budget is a tool of control, while forecasting does not represent any tool of control.

Difference Cont… iv. Budget is connected with business or industry, while forecasting is not.

Budgetary Control Budgetary control is the process of determining various budgeted figures and comparing them with the actual performance for calculating variances if any. Comparison of budgeted and actual figures will enable the management to find out discrepancies and take remedial measures at proper time. .

Budgetary control involves the following i.

Establishment of budgets for each function of the organization. ii. Comparison of the actual performance with the budgeted results. iii. Taking steps to achieve the desired objective. iv. If the budgeted results is unattainable or under cicumstances, the budget may be revised.

Objectives of Budgetary Control  To ensure planning for future by setting up various budgets.  To co-ordinate the activities of various departments.  To operate various cost centres and departments with efficiency and economy.  To take corrective measures either on the budget side or on the performance side.

Requisites Of Budgetary Control a) A clearly defined organisation. b) A well defined policy. c) Proper delegation of authority and responsibility. d) Effective communication. e) Budget education. f) Logical sequence in budget preparation.

Cont… g) Participation of all employees. h) Flexibility. i) Motivation.

Functional Budgets. • A functional budget is one which relates to any of the function of an undertaking. • The number depend on the size and nature of the business. • Commonly used functional budgets: Sales budget.

Cont… Production budget. Purchase budget. Administration cost budget. Capital expenditure budget. Research and development cost budget. Cash budget etc.

Master Budget • Defined as “ a summary of the budget scheduled in capsule form made for the purpose of presenting in one report, the highlights of budget forecast”. • Also known as “Summary budget or the Finalized budget” plan. • Prepared for the business as a whole, combining all the budget of a period into it. • Gives overall budget plan.

Advantages • Summary of the whole budget available in one report. • Checks the accuracy of all functional budget. • Gives estimated profit position of the concern for the budget period. • Gives the projected balance sheet of the organization.

Cash Budget • Defined as “ An analysis of flow of cash in a business for a future, short or long period of time”. • Forecast of expected cash intake and outlay. • Also known as financial budget. • Helps in effective utilization of available funds.

Purpose Of Cash Budget  to ensure that cash is available in time for carrying out business activities and meeting financial obligation.  to maintain working capital position safe.  to use the available cash in best posible manner.  to find whether surplus funds are available for outside investments.

Advantages  expected total receipts and total payment of cash are available in one statement.  unsual item of expenditure like major capital investments may be planned on the basis of expected availability of cash on future date.  funds from external sources can be arranged, if shortage is anticipated in advance.

Advantages Cont…  all other functional budgets can be conveniently adjusted.