Question

What do you understand by Budgetary Control? How is it exercised? What steps should be taken for installing Budgetary Control System in an organization? Discuss.

Answer 1

Budgetary control is a technique whereby the actual results are compared with budgets. The differences are then made the responsibility of key individuals and they have a choice of either revising the original budgets or exercise control
action.

A budgetary control system is a method of monitoring and controlling income,and expenditure and for managing the demands for cash, minimizing borrowings. It can be applied in a business context or by an individual in relation to his or her personal finances. In a business environment it is most valuable as a tool to control the flow of cash because a good system would monitor cash inflow and flag-up any projected shortfalls so that corrective action could be taken, for example if some customers were habitually not paying promptly or there was a sudden and unusual need for spending. Additionally, such a system would also ensure that cash was always available for essential business purposes like buying raw materials.