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1WEEK 9BUDGETINGTeaching/Learning Objectivesi.Define budget, and explain the objectives and importance ofbudgeting.ii.Explain the different types of budgetsiii.Explain the objectives, importance and limitations of budgetarycontroliv.Understand the importance of budget committees and budget manuals.v.Describe the components of a financial budget.vi.Prepare cash budget, budgeted income statement and budgetedbalance sheet.vii.Understand how managers use budgeting.Topics to be covered9.1 Meaning and Definition9.2 Objectives9.3 Advantages of budgets9.4 Budget classification9.5Objectives of Budgetary control9.6Steps for adoption of budgetary control9.7Implementation of budgetary control9.8Limitations of budgetary control9.9Budget committee9.10Budget controller9.11Budget manual9.12 Financial budget
29.1 MEANING AND DEFINITION•A plan showing how resources will be acquired and used over aspecified time interval is called a budget. It is a blue print of theprojected plan of action expressed in quantitative terms for a specifiedperiod of time.•The act of preparing a budget is called budgeting and the use of abudget as a means of controlling activity is called budgetary control.•Efficient utilization of resources of the concern requires planning.Planning, however, must be accompanied by controls, established inadvance so that excessive costs can be budgeted as they occur.•The problem of establishing planning procedures as well as costs thatshould and can be controlled is solved by a budget.•According to ICMA, England, a budget is a financial and/orquantitative statement, prepared prior to a defined period of time, ofthe policy to be pursued during that period of time for the purpose ofattaining a given objective•Budgeting control consists of the establishment of budgets relating tothe responsibility of executives to the requirements of a policy and thecontinuous comparison of actual with budgetary results either tosecure by individual action the objective of that policy or to provide abasis for its revision.•Essential features based on the definition:°A financial statement of quantities also with/without financialfigures°Budget is prepared for a specific period, and it is a preparedgenerally before the period begins°It is a plan of the policy to be pursued during the budget period;and the purpose it to attain a given objective°It is prepared in advance and based on a future plan of action°It relates to a future period and based on objectives to be attained°It is a statement expressed in monetary and/or physical unitsprepared for the implementation of policy formulated by themanagement.°It is a blueprint i.e. the original plan upon which action is based.
3•It involves:°Establishment of budgets°Continuous comparison of actuals with budget for achievement oftargets°Placing the responsibility for failure to achieve the budget figures°Revision of budgets in the light of changed arrangements.