ESTABLISHING A SYSTEM OF

BUDGETARY CONTROL
 Budgetary Control
• Budgetary control is a process for managers
to set financial and performance goals with
budgets, compare the actual results, and
adjust performance, as it is needed.
Pre-requisites for the successful
implementation of a budgetary
control system are as follows:
 1. Creation of budget centres
• A budget centre is a section of the
organisation of an undertaking for which
separate budget is prepared.
• A budget centre may be a department or a
part thereof.
• Example-purchase budget, labour cost budget.
 2. Introduction of adequate
accounting records
• The accounting system should be so designed
as to be able to record and analyse the
information required.
• Comparisons cannot be made if the
classifications do not coincide.
3. Preparation of an organisation
chart
• Proper organisation is essential for a
successful budget system.
• An organisation chart should be prepared
which clearly shows the plan of the
organisation.
 Managing
director

Budget
Committee

Budget
Director

Sales Purchase Production Personnel Chief R&D

Manager Manager Manager Manager Accountant Manager
 4. Establishment of budget
committee
• In large concerns, the direction and execution
of the budget is delegated to a budget
committee which reports directly to top
management.
• The financial controller is usually appointed to
serve as the budget director.
5. Preparation of budget manual
• A budget manual is a set of rules
and instructions used by large organizations to
prepare their budgets and related reports.
• As organizations become larger and more
complex, it is no longer possible for just one
person to prepare a budget.
• A budget manual is thus a statement of
budget policies.
 6. Budget period
• Budget period is a length of time for which a
budget is prepared and operated.
• Budget periods vary between short term and
long term and no specific period can be laid
down for all budgets.
7. Determination of the principal
budget factor or key factor
• The key factor means the factor which limits
the size of output.
• It is also known as limiting factor or governing
factor.
• For example, when sales potential is limited,
sales is the key factor. Therefore it should be
prepared first, production and other budgets
will follow the sales budget.
 THANK YOU!

MADE BY VANSHUL AGGARWAL