Budget and Budgetary Control as a Managerial Tool in an Organization

Introduction

1.1 Background Of The Study

This chapter is devoted to the review of relevant literature and contributions of several authors and researchers to the area of budgeting. In this chapter, the historical perspective and the basic principles of budgeting will be discussed. Various definitions for a successful budget administration and budget preparation process will be looked into. Also, to be discussed in the principle budget factors, details of total periodic budget and budget review as well as advantages and difficulties of budget, plus definitions of key terms used in the study. Budgeting may be defined as “financial and or quantitative statement prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective. They may include income, expenditure and the employment of capital” (I.C.M.A – Terminology of the Institute of Cost and Management Accountant). “a budget has also been defined as comprehensive and co-ordinate plan, expressed in financial terms, for the operation and resources of an enterprise for some specific period in the future (Fregman, J.M. accounting for managerial analysis Home wood III, Richard Inc. 1973).

The basic elements of a budget are: It is a comprehensive and co-ordinate plan It is expressed in financial terms It is a plan for the firms operation and research It is a future plan for a specific period It is a comprehensive plan in the sense that it’s activities and operations are considered when it is prepared. It is a budget of the enterprise as a whole. Budgets are indeed prepared for various segments of the enterprises as a whole. Budgets are indeed prepared for various segments of the enterprise, but they are master budget (Ibid Pp. 256-259). Budget is always quantified in financial terms. Initially the budget may be developed in terms varieties of quantities, but finally they must be expressed in money. The budget is primarily focused on attaining objectives and strategies. These can only be formulated within the overall policy of the company. This means that budgeting derives from corporate planning and should be regarded as a subject of corporate planning corporate planning itself in essence of setting objectives and defining and selecting strategies that will enable the company achieve those objectives. (The association of certified accountant: management accounting chart tutor limited (London 1981).