Question

What is meant by budgetary control?

Hint:

Budgetary control ensures that financial resources are allocated effectively and helps management keep expenses within limits, enhancing overall financial discipline.

Answer 1

Budgetary control refers to the process of comparing the budgeted figures with the actual financial performance of an organization. It is a tool used by management to ensure that the organization stays within its financial limits and achieves its financial objectives. Below are the key aspects of budgetary control: Step 1: Setting Budgets.
The first step in budgetary control is setting a detailed budget that outlines the expected revenues, expenses, and investments for a specific period. These budgets are created based on the organization’s goals and historical performance.
Step 2: Comparing Actual Performance.
Once the budget is set, the actual performance is compared to the budgeted figures. This helps management assess whether the organization is operating as planned or if corrective action is needed.
Step 3: Identifying Deviations.
Budgetary control helps identify deviations between actual and budgeted figures. Any significant differences (favorable or unfavorable) are noted and investigated to understand the cause and take appropriate actions.
Step 4: Corrective Action.
If any deviations are identified, corrective actions are taken. This may involve adjusting the operations, cutting down on costs, or re-allocating resources to stay within the budget.
Step 5: Continuous Monitoring.
Budgetary control is an ongoing process. Regular monitoring of performance helps ensure that the organization remains on track to meet its financial goals.