1. Meaning of Budget:
A budget is the monetary or/and quantitative expression of business plans and policies to be
pursued in the future period of time.
According to CIMA, “A budget is a financial and/or quantitative statement prepared prior to
a defined period of time, of the policy to be pursued during that period for the purpose of attaining
a given objective”.
Meaning of Budgetary Control:
It is the process of determining various budgeted figures for the enterprises for the future
period and then comparing the budgeted figures with the actual performance for calculating
variances, if any.
Budgetary control is a system of controlling costs which includes preparation of budgets, co-
coordinating and department and establishing responsibilities, comparing actual performance with
the budgeted and acting upon results to achieve maximum profitability.
Objective of Budgetary Control:
1. To ensure planning for future by setting up various budgets. The requirements and expected
performance of the enterprise are anticipated.
2. To coordinate the activities of different department.
3. To operate various cost centers and departments with efficiency and economy
4. Elimination of wastes and increase in profitability
5. To anticipate capital expenditure for future
6. To centralize the control system
7. Correction of deviation form the established standards
8. Fixation of responsibility of various individuals in the organization.
Advantages of Budgetary Control:
1. Maximization of profit
2. Coordination
3. Tools for measuring performance
4. Determining weakness
5. Corrective action
6. Reduces cost
Limitation of Budgetary Control:
1. Uncertain future

2. 2. Discourages Efficient persons
3. Problem of coordinating
4. Conflict among different department
5. Depends upon support of top management
Types of Budget:
The budget may be classified into
A) Classification according to Time
a. Long term budgets
b. Short term budgets
c. Current budgets
B) Classification on the basis of Function
a. Operating budgets
b. Financial budget
c. Master budget
C) Classification on the basis of Flexibility
a. Fixed budget
b. Flexible budget
Flexible Budget:
A Flexible budget consists of a series of budgets for different level of activity. It
varies with the level of activity attained. A flexible budget is prepared after taking into consideration
unforeseen changes in the condition of the business. A flexible budget is defined as a budget which
by recognizing the difference between fixed, semi –variable, and variable cost is designed to change
in relation to the level of activity.
The flexible budget will be useful where level of activity changes from time to time. When
the forecasting of demand is uncertain and the undertaking operates under the conditions of
shortage of materials, labour etc, then this budget will be more suitable.
Format of Flexible Budget

3. Particulars Capacities
50% 60% 100%
Fixed Expenses -- -- --
Variable Expenses -- -- --
Semi Variable Expenses -- -- --
Add : profit / Less : Loss -- -- --
Estimated Sales *** *** ***
Cash Budget :
A cash budget is an analysis of flow of cash in a business over a short or long period of time.
It is a forecast of cash intake and outlay.
Format of Cash Budget
Cash budget for the months from Jan to April (4 month ending)
Details Jan Feb Mar Apr
Receipts:
Opening balance (cash in hand)
Cash Sales
Credit Sales
Other Receipts
Total ……………………………….(A)
Payments:
Purchases
Wages
Expenses
Income Tax
Total ……………………………..(B)
Closing Bal (A - B)