CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The word “budget” was derived from the French word “bougette” which means a small bag. It connotes a small bag which embodies the financial proposals of an organization for a given period of time usually one year. The organization could be government, business enterprises or family. Initially, business firms used the appropriation type of budget adopted from the government. The purpose was to limit the expenditure on some items such as advertising and research and development, which were considered as luxury item. But this is in contrast with what is obtainable in the present day economics. Going by the volume IV of International Edition of the Encyclopedia Americana [1988], “a business unit employs a budget to carry out
its financial planning or forecasting. A business budget is a formalized quantitative presentation – a set of figures of a firm’s coordinated plans”. Budgeting is essentially, a process of planning and control. A well-prepared budget provides management with a planned program based upon investigation, study, and research on the part of the entire organization. In addition, a well-prepared budget provides complete co-ordination of the marketing, production and financial activities of a business. Budgeting alone, however, does not bring realization of the plans. Control over operations is necessary in order that deviations from the plans may be noted
and corrected so that the business may be kept on the planned course. Budgetary Control originated in the 1920’s as a means of planning and control. Businessman wanted to see the possible outcome of their plans and forecasts, and budgets were prepared for this purpose. Hamilton [1961] rightly indicated that, “modern budgetary control comprises both a plan of operations and the means of controlling operations within the scope of the “plan”.