Introduction to Management Accounting

INTRODUCTION TO
MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is defined as the process related to providing the financial
informations and resources to management for decision making. Management accounting is used
by internal management team for improving the performance of company. Management
accounting helps the organisation to plan for its future activities and goals. Management
accounting includes various rules and concepts to be followed. With this information managers
of organisation are able to make more accurate decisions. It involves preparation of budgets and
various cost accounting reports for reducing the cost of production. The report is about the
budget and the process involved in preparing a budgets. It will also provide for the budgets and
the behavioural aspects of the budgeting process.
MAIN BODY
Budgeting
Budget can be defined as quantitative and financial statements of the operational plans
related to specific time period, that are required to be followed in the budgeted period for
achieving the specific financial objective of organisation. Budget is formal statement related to
estimated incomes and expenses which are based over future goals and objectives. Budget is
prepared by the management for estimating the expenses and revenues for upcoming period on
the basis of business goals (Budgeting, 2019). The budgets are prepared in advance before the
process of activity has been started and again after the process or activity is completed actual
cost statements are prepared.
Budgeting is a critical process for the business organisations. It involves various process
like evaluating, monitoring, controlling and forecasting financial goals of business. Budgets are
required to be framed after carrying out proper research about all the items that are to be
included in the budgetary process. The budgets are prepared for the organisation to have control
over its spendings and costs. Budget mainly serves as the great guide through which business
could oversee their income stream and could determine the potential dangers towards it
beforehand.
Budgets provide the organisation a defined direction to follow during the budgeted
period. Budgets helps in proper allocation of resources among the activities and department.
Budgets ensure that there is effective utilisation of resources within the activities (Morgan and
et.al., 2017). If these budgets are not prepared appropriately they may affect the whole cost

structure of company. Management prepares statements of variance analysis for comparing the
actual outcomes with that of the budgeted.
Sequence of budgeting process
Every organisation is scarce of time and money. Effective and efficient utilisation of
resources needs planning. Budget is prepared for planning and controlling the business
expenditures. Various types are budgets can be prepared by the organisation for planning the
future earnings and expenses. It involves projecting future profitability of the business and its
maintenance (Reome and Sinclair, 2017). The budgets are prepared after going through number
of processes. The steps involved in the budgeting process are :
Setting objectives for budgeting of company
Budgeting committees or key managerial personnels before the budgets are prepared for
company must set goals and objectives for future of company. The objectives to be included can
be cost savings, the defined limits of expenditures. The objectives should be made considering
all the factors that will lead the organisation towards growth and profitability. It should not be
limited over the expansion plan.
Determining the available resources.
Business objectives may influence budgeting process of company but should not entirely
dictate the process. Management are required to analyse the resources available and determine
whether the sufficient resources are available for reaching the objectives of company (Becker
and et.al., 2016). The availability of resources often dictate over a considerable extent objectives
of company. Resources are not limited over cash available with company and also include loans
or additional investment. The company should make available sufficient funds for carrying out
the operations of company.
Projecting future needs
Budget is prepared in advance and it is looking forward. It involves making estimates for
future. It is not possible for anyone to make accurate projections about the future budgetary
requirements of organisation. Management prepares budgets after making thorough research
about the future needs and demands by reviewing the previous budgets and estimates and the
variances. Company should analyse the market trend, company data for past years, data available
for competitors and the analysis about the existing & developing regulatory and economic trends.