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Unit 6: Budgetary Control

(vii) After the budget has been approved by the top management of the organisation, the same Notes
cannot be altered except under specified conditions, and
(viii) It indicates the business policy which has to be followed so as to achieve a given objective.

6.1.2 Objectives of Budget

The main objectives of budget are:
(i) It directs the attention of all concerned to the attainment of a common objective or goal.
(ii) It contributes to coordinated efforts of all departments in order to achieve an integrated
goal.
(iii) It aims at careful control over the performance and cost of every function.
(iv) Budgets grow from bottom and are controlled from top-level, and
(v) The budgets are compared with actual performance.

Differences between a Budget and Forecast

The main differences between a budget and forecast are given as under:

Table 6.1: Difference between Budget and Forecast

S.No. Budget Forecast
(i) A budget is a tool of planning and control. A forecast is a planning device.
(ii) A budget is prepared for a defined period A forecast is generally for a longer period
of time. i.e. one year, two years or five years.
(iii) A budget covers only economic activities of A forecast may cover economic as well as
business. non-economic activities of business.
(iv) The budget process starts where forecasting Forecasting precedes preparation of budget.
ends.
(v) Budgeting is not a pre-requisite for Forecasting is pre-requisites for budgeting.
forecasting.
(vi) A budget relates to planned events. A A forecast relates to anticipated events of
budget shows policies and programmes to business.
be pursued by the organisation.
(vii) Budget is always used for evaluating the Forecast is not used for evaluating the
efficiency of performance. efficiency of performance.

6.2 Budgeting

Budgeting means the process of preparing budgets. In other words, budgeting refers to the
management action of formulating budgets. Preparation of budgets involves study of business
situations and understanding of management goals as also the capacity of the organisation.
According to Welsch, “budgeting is the principal tool of planning and control offered to
management by accounting functions.”
In the words of J. Batty, “the entire process of preparing the budgets is known as budgeting.”
Rowland and Harr has defined budgeting as, “budgeting may be said to be the act of building
budgets.”

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