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Table of Content:-
BUDGETING“>Budgeting-
Different types of Deficits-
[su_heading size=”21″]Budgeting[/su_heading]
Budgeting is the process of estimating the availability of Resources and then allocating them to various
activities of an organization according to a pre-determined priority. In most cases, approval of a budget also
means the approval to various spending units to utilize the allocated resources. Budgeting plays a criucial role in the socio-Economic Development of the nation.
Budget is the annual statement of the outlays and tax revenues of the government of India together with the laws and
regulations that approve and support those outlays and tax revenues . The budget has two purposes in general :
1. To finance the activities of the Union Government
2. To achieve macroeconomic objectives.
The Budget contains the financial statements of the government embodying the estimated receipts and expenditure for one financial year, ie. it is a proposal of how much Money is to be spent on what and how much of it will
be contributed by whom or raised from where during the coming year.
[su_heading size=”21″]Different types of Budgeting[/su_heading]
Economists throughout the globe have classified the budgets into different types based on the process and purpose of the budgets, which are as follows:-
1- The Line Item Budget
line-item budgeting was introduced in some countries in the late 19th centuary. Indeed line item
budgeting which is the most common form of budgeting in a large number of countries and suffers from
several drawbacks was a major reform initiative then. The line item budget is defined as “the budget in which the individual financial statement items are grouped by cost centers or departments .It shows the comparison between the financial data for the past accounting or budgeting periods and estimated figures for the current or a future period”In a line-item system, expenditures for the budgeted period are listed according to objects of
expenditure, or “line-items.” These line items include detailed ceilings on the amount a unit would
spend on salaries, travelling allowances, office expenses, etc. The focus is on ensuring that the agencies
or units do not exceed the ceilings prescribed. A central authority or the Ministry of Finance keeps a
watch on the spending of various units to ensure that the ceilings are not violated. The line item budget approach is easy to understand and implement. It also facilitates centralized
control and fixing of authority and responsibility of the spending units. Its major disadvantage is that it
does not provide enough information to the top levels about the activities and achievements of
individual units.
2 – Performance Budgeting
a performance budget reflects the goal/objectives of the organization and spells out performance targets. These targets are sought to be achieved through a strategy. Unit costs are associated with the strategy and allocations are accordingly made for achievement of the objectives. A Performance Budget gives an indication of how the funds spent are expected to give outputs and ultimately the outcomes. However, performance budgeting has a limitation – it is not easy to arrive at standard unit costs especially in social programmes which require a multi-pronged approach.
The concept of zero-based budgeting was introduced in the 1970s. As the name suggests, every budgeting cycle starts from scratch. Unlike the earlier systems where only incremental changes were made in the allocation, under zero-based budgeting every activity is evaluated each time a budget is made and only if it is established that the activity is necessary, are funds allocated to it. The basic purpose of Zero-based Budgeting is phasing out of programmes/ activities which do not have relevance anymore. However, because of the efforts involved in preparing a zero-based budget and institutional resistance related to personnel issues, no government ever implemented a full zero-based budget, but in modified forms the basic principles of ZBB are often used.
4- Programme Budgeting and Performance Budgeting
Programme budgeting in the shape of planning, programming and budgeting system (PPBS) was
introduced in the US Federal Government in the mid-1960s. Its core themes had much in common with
earlier strands of performance budgeting.
Programme budgeting aimed at a system in which expenditure would be planned and controlled by the
objective. The basic building block of the system was Classification of expenditure into programmes,
which meant objective-oriented classification so that programmes with common objectives are
considered together.
It aimed at an integrated expenditure management system, in which systematic policy and expenditure planning would be developed and closely integrated with the budget. Thus, it was too ambitious in scope. Neither was adequate preparation time given nor was a stage-by-stage approach adopted. Therefore, this attempt to introduce PPBS in the federal government in USA did not succeed, although the concept of performance budgeting and programme budgeting endured.
[su_heading size=”21″]Budgetary Control[/su_heading]
Budgetary control refers to how well managers utilize budgets to monitor and control costs and operations in a given accounting period. In other words, 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.
Budgetary control involves the following steps :
(a) The objects are set by preparing budgets.
(b) The business is divided into various responsibility centres for preparing various budgets.
(c) The actual figures are recorded.
(d) The budgeted and actual figures are compared for studying the performance of different cost centres.
(e) If actual performance is less than the budgeted norms, a remedial action is taken immediately.
The main objectives of budgetary control are the follows:
1. To ensure planning for future by setting up various budgets, the requirements and expected performance of the enterprise are anticipated.
3. To operate various cost centres and departments with efficiency and economy.
4. Elimination of wastes and increase in profitability.
5. To anticipate Capital Expenditure for future.
6. To centralise the control system.
7. Correction of deviations from the established standards.
8. Fixation of responsibility of various individuals in the organization.
[su_heading size=”21″]Responsibility Accounting[/su_heading]
Responsibility accounting is an underlying concept of accounting performance measurement systems. The basic idea is that large diversified organizations are difficult, if not impossible to manage as a single segment, thus they must be decentralized or separated into manageable parts.
These decentralized parts are divided as : 1) revenue centers, 2) cost centers, 3) profit centers and 4) Investment centers.
- revenue center (a segment that mainly generates revenue with relatively little costs),
- costs for a cost center (a segment that generates costs, but no revenue),
- a measure of profitability for a profit center (a segment that generates both revenue and costs) and
- return on investment (ROI) for an investment center (a segment such as a division of a company where the manager controls the acquisition and utilization of assets, as well as revenue and costs).
Advantages:-
- It provides a way to manage an organization that would otherwise be unmanageable.
- Assigning responsibility to lower level managers allows higher level managers to pursue other activities such as long term planning and policy making.
- It also provides a way to motivate lower level managers and workers.
- Managers and workers in an individualistic system tend to be motivated by measurements that emphasize their individual performances.
In India the budget is prepared from top to bottom approach and responsible accounting would not only improve the efficiency of Indian budgetary system but also will help in performance analysis.
[su_heading size=”21″]Social Accounting[/su_heading]
Social accounting is concerned with the statistical classification of the activities of human beings and human institutions in ways which help us to understand the operation of the economy as a whole.
Social accounting is the process of communicating the social and environmental effects of organizations’ economic actions to particular interest groups within Society and to society at large
The components of social accounting are production, consumption, capital accumulation, government transactions and transactions with the rest of the world.
The uses of social accounting are as follows:
(1) In Classifying Transactions
(2) In Understanding Economic Structure
(3) In Understanding Different Sectors and Flows
(4) In Clarifying Relations between Concepts
(7) In Explaining Movements in GNP
(8) Provide a Picture of the Working of Economy
(9) In Explaining Interdependence of Different Sectors of the Economy
(10) In Estimating Effects of Government Policies
(11) Helpful in Big Business Organisations
(12) Useful for International Purposes
(13) Basis of Economic Models
[su_heading size=”21″]Budgetary Deficit[/su_heading]
Budgetary Deficit is the difference between all receipts and expenditure of the government, both revenue and capital. This difference is met by the net addition of the Treasury Bills issued by the RBI and drawing down of cash balances kept with the RBI. The budgetary deficit was called Deficit Financing by the government of India. This deficit adds to Money Supply in the economy and, therefore, it can be a major cause of inflationary rise in prices.
Budgetary Deficit of central government of India was Rs. 2,576 crores in 1980-81, it went up to Rs. 11,347 crores in 1990-91 to Rs. 13,184 crores in 1996-97.
The concept of budgetary deficit has lost its significance after the presentation of the 1997-98 Budget. In this budget, the practice of ad hoc treasury bills as SOURCE OF FINANCE for government was discontinued. Ad hoc treasury bills are issued by the government and held only by the RBI. They carry a low rate of interest and fund monetized deficit. These bills were replaced by ways and means advance. Budgetary deficit has not figured in union budgets since 1997-98. Since 1997-98, instead of budgetary deficit, Gross Fiscal Deficit (GFD) became the key indicator.
[su_heading size=”21″]Fiscal Deficit[/su_heading]
- The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government and thus amounts to all the borrowings of the government . While calculating the total revenue, borrowings are not included.
- The gross fiscal deficit (GFD) is the excess of total expenditure including loans net of recovery over Revenue Receipts (including external grants) and non-debt capital receipts. The net fiscal deficit is the gross fiscal deficit less net lending of the Central government.
- Generally fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development.
- A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and Bonds.
[su_heading size=”21″]Revenue Deficit[/su_heading]
- Revenue deficit is concerned with the revenue expenditures and revenue receipts of the government. It refers to excess of Revenue Expenditure over revenue receipts during the given fiscal year.
- Revenue Deficit = Revenue Expenditure – Revenue Receipts
- Revenue deficit signifies that government’s own revenue is insufficient to meet the expenditures on normal functioning of government departments and provisions for various Services.
- In India social expenditure like MNREGA is a revenue expenditure though a part of Plan expenditure.
- Its targeted to be 2.9% of GPD in the year 2014-15, though the fiscal revenue and budget management act specifies it to be zero by 2008-09
,
Budgeting is the process of planning and controlling financial resources. It involves setting financial goals, developing strategies to achieve those goals, and monitoring progress to ensure that goals are met.
There are many different types of budgeting, each with its own advantages and disadvantages. Fixed budgets are based on the assumption that costs and revenues will remain constant throughout the budget period. Flexible budgets, on the other hand, are adjusted to reflect changes in costs and revenues. Zero-based budgeting requires managers to justify all expenses each year, as if the program were starting from scratch. Rolling budgets are updated on a regular basis, typically monthly or quarterly. Capital budgets are used to plan and control large expenditures, such as the purchase of equipment or property.
Budgetary control is the process of ensuring that actual results conform to budget plans. It involves comparing actual results to budget plans, identifying variances, and taking corrective action as needed. Responsibility accounting is a system of accounting that assigns responsibility for costs and revenues to specific individuals or departments. Social accounting is a system of accounting that reports on the social and environmental impacts of an organization’s activities.
A budget deficit occurs when a government spends more money than it takes in during a given fiscal year. The fiscal deficit is the difference between government revenues and expenditures. The revenue deficit is the difference between government revenues and non-interest expenditures.
There are a number of reasons why a government might run a budget deficit. One reason is that the government may be trying to stimulate the economy during a Recession. Another reason is that the government may be providing social programs that are not fully funded by taxes. Finally, the government may be borrowing money to finance its operations.
Budget deficits can have a number of negative consequences. They can lead to higher interest rates, Inflation, and a decrease in the value of the currency. They can also make it more difficult for the government to borrow money in the future.
There are a number of ways to reduce a budget deficit. One way is to raise taxes. Another way is to cut spending. The government can also try to increase its revenues by selling assets or raising fees.
Budget deficits are a complex issue. There is no easy solution to the problem. However, it is important to understand the causes and consequences of budget deficits so that we can make informed decisions about how to address them.
Here are some additional details about the different types of budgeting:
- Fixed budgets are based on the assumption that costs and revenues will remain constant throughout the budget period. This type of budget is often used for short-term planning, such as a monthly or quarterly budget.
- Flexible budgets are adjusted to reflect changes in costs and revenues. This type of budget is often used for long-term planning, such as a yearly budget.
- Zero-based budgeting requires managers to justify all expenses each year, as if the program were starting from scratch. This type of budget is often used to control costs and improve efficiency.
- Rolling budgets are updated on a regular basis, typically monthly or quarterly. This type of budget is often used to track progress towards long-term goals.
- Capital budgets are used to plan and control large expenditures, such as the purchase of equipment or property. This type of budget is often used by businesses and governments.
Here are some additional details about the different types of deficits:
- The fiscal deficit is the difference between government revenues and expenditures. This is the most common type of deficit.
- The revenue deficit is the difference between government revenues and non-interest expenditures. This type of deficit occurs when the government’s non-interest expenditures are greater than its revenues.
- The Primary Deficit is the difference between government revenues and total expenditures, excluding interest payments. This type of deficit occurs when the government’s total expenditures are greater than its revenues, excluding interest payments.
Budgeting
What is budgeting?
Budgeting is the process of planning and controlling financial resources. It involves setting financial goals, developing strategies to achieve those goals, and tracking progress to ensure that goals are met.What are the different types of budgeting?
There are many different types of budgeting, but some of the most common include:- Operating budgets: These budgets cover the day-to-day operations of a business. They typically include expenses such as salaries, rent, and utilities.
- Capital budgets: These budgets cover the purchase of long-term assets such as equipment and buildings.
- Cash budgets: These budgets track the flow of cash into and out of a business. They are important for ensuring that a business has enough cash on hand to meet its obligations.
- Zero-based budgets: These budgets start from scratch each year, with no carryover from the previous year. This forces managers to justify every expense, which can help to identify waste and inefficiency.
What is budgetary control?
Budgetary control is the process of using budgets to monitor and control financial performance. It involves comparing actual results to budget projections and taking corrective action when necessary.What is responsibility accounting?
Responsibility accounting is a system of accounting that assigns responsibility for costs and revenues to specific individuals or departments. This information can be used to evaluate performance and make decisions about resource allocation.What is social accounting?
Social accounting is a system of accounting that reports on the social and environmental impacts of an organization. This information can be used to improve the organization’s social and environmental performance.
Different types of Deficits
What is a budgetary deficit?
A budgetary deficit is the amount by which a government’s spending exceeds its revenue in a given year.What is a fiscal deficit?
A fiscal deficit is the amount by which a government’s total expenditure exceeds its total revenue, including both tax and non-tax revenue, in a given year.What is a revenue deficit?
A revenue deficit is the amount by which a government’s revenue from taxes and other sources falls short of its total expenditure in a given year.
Frequently Asked Questions
What are the benefits of budgeting?
There are many benefits to budgeting, including:- Improved financial planning: Budgeting can help you to track your income and expenses, identify areas where you can save money, and reach your financial goals.
- Reduced Stress: Budgeting can help you to feel more in control of your finances and reduce financial stress.
- Improved credit score: Budgeting can help you to improve your credit score by demonstrating that you are able to manage your finances responsibly.
- Increased Savings: Budgeting can help you to increase your savings by identifying areas where you can cut back on spending and by setting aside money each month for savings.
What are the challenges of budgeting?
There are a few challenges associated with budgeting, including:- Time commitment: Budgeting can take some time and effort to set up and maintain.
- Discipline: It can be difficult to stick to a budget, especially if you are not used to doing so.
- Unexpected expenses: Unexpected expenses can throw off your budget, so it is important to have a plan for how you will deal with them.
How can I create a budget?
There are a few steps you can follow to create a budget:- Track your income and expenses: The first step is to track your income and expenses for a month or two. This will give you a good understanding of where your money is going.
- Set financial goals: Once you know where your money is going, you can set financial goals. These goals could include saving for a down payment on a house, retirement, or your child’s Education.
- Create a budget: Based on your income and expenses, you can create a budget that will help you reach your financial goals.
- Track your progress: It is important to track your progress and make adjustments to your budget as needed.
What are some tips for sticking to a budget?
There are a few tips that can help you stick to a budget:- Make a budget that is realistic: Your budget should be based on your actual income and expenses. If you set your budget too high, you are more likely to give up on it.
- Track your spending: It is important to track your spending so that you can see where your money is going. This will help you identify areas where you can cut back.
Question 1
A budget is a financial plan for a specific period of time. It is used to track income and expenses, and to make sure that money is spent wisely.
Which of the following is not a type of budget?
(A) Operating budget
(B) Capital Budget
(C) Cash flow budget
(D) Social budget
Answer
(D) Social budget
A social budget is a type of budget that is used to track social spending. It is not a traditional type of budget, and it is not used by most businesses or individuals.
Question 2
Budgetary control is the process of using budgets to manage a business or organization. It involves setting goals, tracking performance, and making adjustments as needed.
Which of the following is not a benefit of budgetary control?
(A) It helps to improve efficiency.
(B) It helps to reduce costs.
(C) It helps to improve accuracy.
(D) It helps to improve morale.
Answer
(D) It helps to improve morale.
Budgetary control can help to improve efficiency, reduce costs, and improve accuracy. However, it does not directly improve morale.
Question 3
Responsibility accounting is a system of accounting that assigns responsibility for costs and revenues to specific individuals or departments.
Which of the following is not a benefit of responsibility accounting?
(A) It helps to improve accountability.
(B) It helps to improve decision-making.
(C) It helps to improve coordination.
(D) It helps to improve morale.
Answer
(D) It helps to improve morale.
Responsibility accounting can help to improve accountability, decision-making, and coordination. However, it does not directly improve morale.
Question 4
Social accounting is a type of accounting that focuses on the social and environmental impact of a business or organization.
Which of the following is not a benefit of social accounting?
(A) It helps to improve transparency.
(B) It helps to improve accountability.
(C) It helps to improve decision-making.
(D) It helps to improve morale.
Answer
(D) It helps to improve morale.
Social accounting can help to improve transparency, accountability, and decision-making. However, it does not directly improve morale.
Question 5
A budgetary deficit is the amount by which a government’s spending exceeds its revenue in a given year.
Which of the following is not a cause of a budgetary deficit?
(A) Increased spending
(B) Decreased revenue
(C) Economic recession
(D) Increased taxes
Answer
(D) Increased taxes
Increased taxes can help to reduce a budgetary deficit. However, they are not a cause of a budgetary deficit.
Question 6
A fiscal deficit is the amount by which a government’s total expenditure exceeds its total revenue in a given year.
Which of the following is not a cause of a fiscal deficit?
(A) Increased spending
(B) Decreased revenue
(C) Economic recession
(D) Increased borrowing
Answer
(D) Increased borrowing
Increased borrowing can help to finance a fiscal deficit. However, it is not a cause of a fiscal deficit.
Question 7
A revenue deficit is the amount by which a government’s revenue from taxes and other sources falls short of its expenditure on goods and services in a given year.
Which of the following is not a cause of a revenue deficit?
(A) Decreased tax revenue
(B) Increased expenditure
(C) Economic recession
(D) Increased borrowing
Answer
(D) Increased borrowing
Increased borrowing can help to finance a revenue deficit. However, it is not a cause of a revenue deficit.