Budgeting and budgetary control

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Introduction

Budgets can be prepared for and used by anyone and anything. That is, we can prepare and use personal budgets and organisations, ministries and non profit making organisations can all use them.

Budgets, by definition, have to be prepared in advance; and for this reason, they are often referred to in terms of their being part of a feedforward system. Feedback is a term frequently heard both in accounting and ordinary use. Feedforward, on the other hand tends to be less frequently heard, yet this word incorporates the most important aspect of budgeting: looking at situations in advance, thinking about the impact and implications of things in advance, attempting to take control of situations in advance.

Budgets

A budget is a plan expressed in quantitative and money terms. Budgets need to be prepared and approved in advance of the period in which they are to be used. Budgets can include some or all of income, expenditure, and the capital to be employed. Moreover, a budget can be drawn up for an entire organization, any segment of the organization such as a department or sales territory or division, or for a significant activity such as the production and sale of a specific product.

We should also add that a budget can include non monetary as well as monetary information in it.


Budgetary Control

Budgets are simply exercises in calculation unless they are used. When we use a budget, we do so as part of a system of budgetary control. That is, we have some basic ideas of what we want to do, we prepare budgets to help us achieve those ideas; and then once we have done whatever it is that we wanted to do, we check to see if we kept to our budget.