Importance of Budgeting in Management Accounting

In this project report, we discuss the importance of budgeting in management accounting. Budgeting is a crucial aspect of managerial accounting that helps organizations plan their expenses effectively, ensuring the attainment of financial goals. We examine the significance of budgeting through two case studies, highlighting its benefits and relevance to Australian companies. The report concludes with a discussion on the use of poster projects as a motivational and learning tool in managerial accounting courses, emphasizing the importance of business analytics and enterprise systems in this field.

Managerial accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
Q1) Explanation of management accounting topic.....................................................................1
Q2) Explanation of the purpose of two studies...........................................................................3
Q3) Similarities and Differences of two studies.........................................................................7
Q4 specific lesson and outcomes from these studies..................................................................1
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................3
.........................................................................................................................................................3

INTRODUCTION
Managerial or cost accounting is refereed to the formation of accurate statements and
reports that help manager in the effective decision making for doing company business
(Managerial accounting, 2013). The process that includes managerial for creating appropriate
plan for future related to the spending of company is commonly known as budgeting. Thus
budgeting plays an important role to the company growth and survival. Proper formation of
budgets help management to control their spending and maximizing the profit of the company.
Budgeting is very important for every organisation so management of Wesfarmers all prepare
budgets for proper utilization of resources and control its spending.
In this project report the importance of budgeting in Wesfarmers is discussed with
reference to two common journal such as accounting, auditing and accountability and other is
management accounting research and their similarities and differences are covered under this
project. Importance of management accounting topic budgeting is discussed and outcome of
these studies are shown in this project report.
Q1) Explanation of management accounting topic.
Management accounting the process where manager of company identify, measure,
analyse, and communicate financial information for the betterment of company performance.
From these information they form budgets to control their expenses and increase revenue and
income in future. Budget are the figuring out of total revenue organisation going to earned and
expenses that a company is going to bear in a specific period of time. Organisation basically
form all type of budgets such as sales, production etc. that help them to manage their fund and
utilise these fund in effective manner. Budgeting is the process that includes management
expert opinion for prediction of future spending in advance that help them to control their flow
of fund in present. In simply, they are the quantitative plan formed by manager to control
company money and make aid them to decide which activity will be benefited for organisation
in future (Altintas and et. al., 2014). Wesfarmers is one of the leading food company in Australia
so it require huge amount of funds and capital to run their daily activity. Management of
Wesfarmers are required to prepare proper budgets so that they can manage and measure
total earning within a time period as compared to budgeted earning.
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Budgeting plays an important role for operation activity in Wesfarmers that includes the
following:
 Estimates of future sales: As management are able to predict the future condition about
customer demands and trends that help them to prepare proper plan for increasing
future sales of company product.
 Helps to control funds: One of the primary function of budgets is to develop understand
among manager that is to control company money and fund and make proper use of
these funds. Finance manager comes to know through budgets about the effectiveness
of project and continue those project and should stop investing money on other project
which are not effectiveness to Wesfarmers.
 Identifies Overspending: Preparation of budgets includes prediction in advance about
the total spending going to incur on project. If the budgeted spending is less than actual
spending management can easily identifies the exact reason of overspending and
control these spending in Wesfarmers.
 Help management to prioritize funds: Importance of budgeting for Wesfarmers as it
enables Manager to find and give Priority to those project and product that have better
return to them. It means because of budgeting Manager first focus and spend on those
production activity that have more chance of income generation. This is also known as
value based spending that ensure management to spend money on the product that
matter most to company.
 Helps to reach Financial goals: As the name suggest budgets play an important role in
achieving financial goals of Wesfarmers (Appelbaum and et. al., 2017). Manager are
more liable to pay attention towards their spending when they have a preplanned
structure of spending on a particular project so they can control their other unnecessary
flow of funds. Budgets help them to determine financial goals and reach these goals.
 Assist to save spend: Budgeting help management to prepare a plan for saving
Wesfarmers money so that it can be useful in any unexpected and expected emergency
cost in future. In general, manager save a part of their spending that is used to
overcome future uncertainties arising within Wesfarmers.
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 Helps in producing extra money: As management already prepare plans about their total
spending it enables them to identify and eliminate all those other expenses like late bill
payments, interests etc. This will enables them to generate more income from the
ongoing project within Wesfarmers (Braun, 2013).
So, budgeting plays very crucial role in the effective management of company. Through
proper budgets formation Manager of Wesfarmers are able top control their unwanted
spending and control them. This increases the efficiency of company and develop market place
in Australia.
Q2) Explanation of the purpose of two studies.
From Journal of Accounting, Auditing and Accountability the important of budgeting is
understand by discussing the related Article “ A comparative study of budgetary and financial
management reforms”. This article includes those reform experience which account of the
budgetary in Australia and other country like Canada , New Zealand. It focus on budgetary and
fiscal management reform as these are considered the crucial for the new public management
reform effort. In case of Australia budgetary reform was of core public services and all those
financial management improvement that were at first attempted to be followed by corporate
and private organisation. This was important because the need of corporatization was less and
more impasis is depended on privatization that relied on budgetary and financial management
reforms. However, the changes in reform was negotiated rather than administered and was
more gradual forthcoming that help them to achieve large scale reform for public services
company with high level of awareness about budgetary reform. It is seen that reform of
budgets and financial management after the election 1996 was the switch from managerial and
materialization that led to new grand design (Demerjian and et. al., 2012). The policy and
procedure documents employed in these budgetary reform are far different because of the
objective given or followed by Australian government. They corporate companies in Australia
enhanced the transparency of government policies (AASB) by considering that all financial
statements prepared on an accrual accounting basis. In 1980s and 1990s according to labour
government the budgetary reform introduced five reticulate elements system such as forward
estimates, budgets portfolio, improve cost system, developing application of efficient dividend
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and program for management and budgeting. From these system the best adoption was the
portfolio budgeting in which more emphasis was given to the higher authority of corporate
companies that includes identifying priorities and assigning the resources to their best disposal.
The primary goal is to build better coordination and increase the priority setting within an
organisation by consolidation and interrelated policy departments with a single portfolio. These
also help in preparing bigger budgets and growing greater scope for allocating and reallocating
the internal and external resources by increasing the size of set portfolio. According to this two
changes have followed as a part of business budgets reform such as, Australian companies like
Wesfarmers shifted to an accrual-based outcome more focus on management theory. Secondly,
the budgets portfolio are generally exempted and now budgets would be allocated to the
individual departments within company separately (Crosson and Needles, 2013.). These
changes push Australian companies closes to the system followed in other country companies.
However in there companies they does not make the formal distinction between the high
authority that are only responsible for results. These management are responsible for ensuring
that result are being transferred by the departments who produce these product or outcomes.
As discussed above the Australian labour government mostly depend on major design of
product, wanted to achieve outcome by preparing an business environment where strategies
for priorities could be articulated.
From the journal article of management accounting research in the reference related to
budgeting the relevant topic is discussed “the effect of budgets farming and budgets-setting
process on managerial reporting”. In this topic participative budgeting make sure that manager
are responsible for evoke private organisation information from other subordinates that would
enables them to make better decision. Assistant may have a different budgets report for their
personal gain, therefore they reduce the values of their formed budgets handled to superior.
Therefore the potential way to affect the report of assistant is to develop framework of the
budgets request and the budgets set by the company itself. To understand there framework
three basis studies of budgets are discussed that is honest, fair and preferred rather
management or assistant sets the budgets (Downen and Hyde, 2016). The important for
farming to overcome the overall slack present in the assistant budgets as compared to the
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manager of budgets. In many firm like Wesfarmers the process to prepare budgets is basically
by subordinates those are more close to the usage of resources and flow of services. So there is
a chance of misrepresent of their private information to service own interest, that might have
an effect on company performance. In contrast, the manager may includes the assistant
attitude that help in avoiding untrue information declaration that would result in the increase in
efficiency of the budgeting process. Therefore the construct of honesty to explain tendency of
individual assistant that avoid them in forming false information statement. There are basically
two reason to understand the important honesty on budgeting process. First, variation from the
self interested behaviour of assistant that can be attributed either to honesty or non monetary
motivation that includes high distribution of incentives. The resolution of this issue is by
influence the assistant style of budgets communication. It includes the treatment that requires
false information and another which required some untrue information. Secondly, honesty
involved in participative budgeting, assistant have the final right to set the budgets as
management has no ability to negate funding. Subordinates forms the budgets proposal in the
contract to determine the distribution of the profit that bring subjects to the rules of the
budgeting process as an moral dilemma that gives honest and other non monetary motivation
(Hilton and Platt, 2013). In addition, most large organisation set their budgets through a process
where assistant and manager are included that focus on the control and performance of
company. Thus from the assistant point of view, there may be a guideline of budgeting as a
strategies of interaction, where cash party are working in their self interest, but that reduces
essential of honestly within budgets. It provides that assistant view lay on the concealing of
information in the formation of budgets that means they are behaving without integrity. Hence,
it can be said that whether honesty would persist in the budgets formation when the superior
has final potency over the formed budgets. In addition, there is no observation related to the
significant incremental effect of honesty when final budgeting lies in the hand of high authority.
The reason that is generated is that less flaccid is created when budgets communication
requires a false information but only this can be possible only when the assistant has final
authority over the budgets. So from the above case study, superior management have shown
more importance to budgeting process that reduces the incremental effect of honesty, budgets
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contain less slack and they have more earning when assistant have the final authority. This
result in the benefits of formal control is consistent with recent finding. For example to find the
optimal hurdle rate of contract, at what level project is rejected if these reports is above the
hurdle, result in greater superior earning (Khalil and Simon, 2014).
Q3) Similarities and Differences of two studies.
Budgeting is one of the crucial activity performed by management to control their
existing fund and use them in a effective manner to that financial goals of companies may be
achieved. To understand the importance of budgeting two most common journal are discussed
with relevant case studies. There are some similarities among these two studies with reference
to the importance of formation of budgets.
Similarity among these journals:
A comparative study of budgetary and
financial management reforms.
The effect of budgets farming and budgets-
setting process on managerial reporting
It provide the guideline to develop the
understanding about the budgeting as these
must be prepared without any false
information and follow proper guidelines to
make these budgets reports. This also includes
the attempt to provide and institutional
account of budgeting and financial
management reform changes in big
enterprises like Wesfarmers (Krapp, Nebel and
Sahamie, 2013).
Budgets report are a part effective
management so this study shows that those
budgets prepared by assistant must be honest
and do not have any untrue financial
information. As if the total authority is in the
hand of subordinate there may be chance of
slack in the report and that might have
negative effect on the performance and
growth of company.
These changes in reform is the best way to
improve the performance of employee and
other management people is to change the
scheme of incentives of managers by injecting
market discipline into the public sector
On the other hand this case study develop the
right in the hand of high authority or superior
that develop the honesty in working and
creating budgets. As honesty is relevant
because only in that case is it possible to form
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companies. Therefore in order to regain the
authenticity for the public sector organisation
and develop the social democratic
governments that is required to soften the
boundary between the state and civil society.
This will all result in increasing the
performance of company and improve the
effectiveness and efficiency of employee
working in public sector companies.
an untrue representation. So in contrast the
incremental effect of honesty in formation of
budgets contain less false report and there is a
chance for the higher management to increase
their earning when they have the final
authority to create final budgets for an
accounting year (Noreen, Brewer and
Garrison, 2014).
Difference from these journals:
A comparative study of budgetary and
financial management reforms.
The effect of budgets farming and budgets-
setting process on managerial reporting.
This article focus on budgetary and financial
management reforms as these these system
constitute the foundation of the all new public
management reforms efforts in Australian
companies because these are result oriented
budgeting system. This article also explain the
observed difference within the budgets
policies followed by different countries that
includes formal structural arrangements and
the distinctive national public sector tradition
and the relationships between the
government and the societal groups operating
within the same industry.
This article discussed the assistant objective
move from the firm they may contain some
misrepresent their private information in
order to serve their own interests regardless
of the effects on the organisation
performance. This opportunity behaviour by
assistant greatly reduces the value of
budgeting process.
This article shows the important of budgeting
for in Australian large companies like
Wesfarmers that vanguard that government
The article shows the slack is created when
budgets communication requires a false
information, but only when the assistant have
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accounting innovation as they all have started
following the accrual accounting system to
form their report and prepare budgets for
their future benefits .
the final authority to make these budgets
report (Warren, Reeve and Duchac, 2013).
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Q4 specific lesson and outcomes from these studies.
Effective reporting – By analysing both the journals it has been observed that
accountants of Australia should follow a specific format of financial reporting. Financial
information should be recorded in a certain format. This format includes financial statements
and accounts such as income statement, balance sheet and cash flow statement. By this
outcome it can be said that accountant of Australia should use reporting system in order to
uniformly report their organisational information.
Investment appraisal – In order to ascertain what all investment portfolio is better it is
important to use techniques of investment appraisal. Techniques such as net profit value,
internal rate of return and average rate of investment appraisal helps in ascertain the returns
which can be attained from investment.
Prioritise funds – This outcome is most important as according to this, funds should be
prioritise so that allocation of funds can be done effectively and efficiently. Funds such as share
holder's funds and retained earnings are funds which should be spend according to the most
important pool of expenses so that effective system can be achieved (Weygandt, Kimmel and
Kieso, 2015).
Planning tools: The accountants of Australia are suggested to use planning tools to
make the accounting process effective. These planning tools are Forecasting, Contingency and
Scenario tools. All these tools help to estimate future conditions whether that are positive or
negative. It will facilitate the work of accountants by providing them information of possible
consequences that may occur in future. It help to make policies to face different unfavourable
conditions that may affect the profitability of the company.
CONCLUSION
In this project report, it is concluded that management accounting is the process of
measuring, identifying and preparing exact information that is useful for internal management
in effective decision making. Budgeting is the future planning about the spending of existence
fund in a appropriate manner so that financial goals of organisation is achieved. Importance of
budgeting is discussed with relevant topic in reference of two case studies. These case studies
develop various outcomes that are useful in Australian companies.

REFERENCES
Books and Journals:
Altintas, N. N. and et. al., 2014. The use of poster projects as a motivational and learning tool in
managerial accounting courses. Journal of Education for Business. 89(4). pp.196-201.
Appelbaum, D. and et. al., 2017. Impact of business analytics and enterprise systems on
managerial accounting. International Journal of Accounting Information Systems. 25.
pp.29-44.
Braun, K. W., 2013. Custom fabric ventures: An instructional resource in job costing for the
introductory managerial accounting course. Journal of Accounting Education. 31(4).
pp.400-429.
Crosson, S. V. and Needles, B. E., 2013. Managerial accounting. Cengage Learning.
Demerjian, P. R. and et. al., 2012. Managerial ability and earnings quality. The Accounting
Review. 88(2). pp.463-498.
Downen, T. and Hyde, B., 2016. Flipping the managerial accounting principles course: Effects on
student performance, evaluation, and attendance. In Advances in Accounting
Education: Teaching and Curriculum Innovations (pp. 61-87). Emerald Group Publishing
Limited.
Hilton, R. W. and Platt, D. E., 2013. Managerial accounting: creating value in a dynamic business
environment. McGraw-Hill Education.
Khalil, M. and Simon, J., 2014. Efficient contracting, earnings smoothing and managerial
accounting discretion. Journal of Applied Accounting Research. 15(1). pp.100-123.
Krapp, M., Nebel, J. and Sahamie, R., 2013. Using forecasts and managerial accounting
information to enhance closed-loop supply chain management. Or Spectrum. 35(4).
pp.975-1007.
Noreen, E. W., Brewer, P. C. and Garrison, R. H., 2014. Managerial accounting for managers.
New York: McGraw-Hill/Irwin.
Warren, C., Reeve, J. M. and Duchac, J., 2013. Financial & managerial accounting. Cengage
Learning.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Financial & managerial accounting. John
Wiley & Sons.
Online
Managerial accounting. 2013. [Online]. Available through:
<https://accountingexplained.com/managerial/introduction/>
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