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.