Effective Management-Budget Control & Responsibility Account

Budgetary control is the process by which budgets are prepared for the future period and are compared with the actual performance for finding out variances if any. The comparison of budgeted figures with actual figures will help the management to find out variances and take corrective actions without any delay.

Budgetary control has become an important tool of an organization to control costs and to maximize profits. Some of the advantages of budgetary control are:

1. It defines the goals, plans and policies of the enterprise. If there is no definite aim then the efforts will be wasted in achieving some other aims.

2. Budgetary control fixes targets. Each and every department is forced to work efficiently to reach the target. Thus, it is an effective method of controlling the activities of various departments of a business unit.

Responsibility accounting is a system of accounting where specific persons are made responsible for the accounting of particular areas and cost control. If that cost increases, then the person will be held accountable and answerable. In this type of accounting system, responsibility is assigned based on a person’s knowledge and skills, and the proper authority is given to that person so that he can make a decision and show his performance.

Advantages of Responsibility Accounting

1. Responsibility accounting delegates decision making. Line managers, department heads, and supervisors are entrusted with operational decisions. The top management (executives) could then focus on strategic or long-term organizational objectives.

2. It provides a guide to the evaluation of performance. It helps to establish standards which are used for comparison with actual results.

3. It promotes management by objectives and management by exception.