This section reviews the earlier studies related to budgeting system, preparation of budget, budget controls, management involvement on budget, budget as a tool of gauging financial performance, and role of cash budget which plays a major role in the bank and finance industry.
In the budgeting literature, budget is defined as a comprehensive preplan regarding usage of financial and other resources for a specified period of time (basically one financial year). With the inclusion of both financial and nonfinancial aspects of planned operations and projects budget provides a guideline for the organization towards well focused results. Moreover, budgeting is the process of formulating a budget. All units of the organization necessitate coordinating activities amongst departments and other business units in order to complete the budget (Blocher et. al, 2010). Thus in an organization planning, controlling, communication and coordination can be contemplated as main functions in the budgeting system.
According to Kerosi (2018) budgets empower the evaluation of firms’ financial viability and thus it is used as a future financial performance tools. Additionally when consider the duration of budgets organizations can prepare both long-term and short term budgets where short term budgets cover monthly, quarterly, semi-annual and annual budgets while long term budgets cover medium to long term time span.
In a Vietnam study on managers’ creation of budgetary slack, has identified impact of management budgetary participation (Huy Ngo et.al, 2017). Besides an Tarigan and Devie (2015) who had conducted Indonesian study has evident that budgeting participation has a positive influence on both managerial performance and job-relevant information then job-relevant information also positively influences managerial performance and they also shows that budgeting participation also has a positive influence on managerial performance through job-relevant information as the intervening variable. Moreover, Owusu et.al (2014) have examined the performance of public universities in Ghana with budgeting system and revealed there is a positive relationship between budget participation and employees’ execution of budget goal. However they argued it cannot only assist a firm to attain its budget goal where other behavioral essentials needed to be realized in the budgeting system since basis to budget goal attainment orbits around behavioral elements.
In a study, Balogun et.al (2015) examined the budgeting system and firm performance and the study revealed that on the performance of an organization has an impact because of budgets and the budgetary controls since they have a positive relationship. With the link of budget with overall strategy, budgets give every organization a structural support to achieve its goals and objectives and thereby exploiting performance via resource sharing and control. Thus with the detailed information regarding the next fiscal year managers have the ability to set realistic objectives when the budget is well prepared.
By observing micro and small enterprises in Kenya, Kerosi (2018) revealed that performance is positively related to the budgetary control practices. The study has observed when budgeting outcomes linked to programs those budgets have clear goals and objectives. The study further found that the enterprises engage its stakeholders in making key budget decisions and that the management of these enterprises review the budget periodically. The study recommended achieving greater results, that the budget review and control should be done frequently. Moreover Sri Lankan study on the budgeting and firm performance conducted for the apparel sector, contributed to the literature observing positive relationship between budgeting process and the performance of the industry (Silva ; Jayamaha, 2012)
Diversified organizations in terms of types and sizes are required to plan expected cash inflows and outflows to attain financial goals and objectives. Cash budget is essential to finance managers to act proactively to make corrective actions in financing and investing situations. If not the managers may source funds at a higher cost and may utilize those funds in an unprofitable way. Thus, an effective cash budget ensures the availability of optimum fund to carry out business activities and utilization of funds to maximize profit by keeping expenditure in line with planned expenditure (Amoako.et al, 2013). Conclusively, cash budget plays a vital role in financial management since mainly cash is the main element in budgeting system.