Answer to Question #41864 in Finance for jayashree

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.