Role of Budgeting in Managing Financial Resources - Uneek Clothing Corporation

This report analyzes the role of budgeting in managing financial resources, using Uneek Clothing Corporation as an example. It discusses different types of budgeting styles, their advantages and disadvantages, the relationship between budgeting and short-term decision making, the impact of changing environments on budgeting styles, and the implications of participatory budgeting on business performance.

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
CONCLUSION..........................................................................................................................................7
REFERENCES..........................................................................................................................................8

INTRODUCTION
In different types of business entities, it is duty of managers that they have to use their
financial and non- financial resources in an effective manner. For this purpose, management
accounting (MA) plays a key role. This is defined as a form of accounting which recognize,
record and analysis information related to business with an aim to produce inner reports
(Taschner and Charifzadeh, 2020). It is used by managers in order to take suitable actions. In this
report a company has been chosen as an example for better understanding which is Uneek
Clothing corporation. This company is located in London, United Kingdom. Basically, the report
is based on analysis of different types of budgeting styles and their role in the context of
managing financial resources.
MAIN BODY
Various forms of budgeting:
Budgeting is a way of aiming at the expected income (the sum that comes into the business from
the sale of products and services) and expenditure (the money that goes out in the form of the
paying of taxes and bills) over a certain period of future. It makes an organization understand
that how such revenue and spending forecasts will help them in upcoming time to use financial
resources. This is a mechanism that is increasingly utilized by businesses to plan a variety of
budgets. In Uneek Clothing corporation they introduce this approach to plan certain budgets.
There are many forms of budgeting and some are listed in such a way as:
Static budgeting style- A static budget is a type of budget that provides information for a defined
level of revenue and expenditure. Within a business ' financial statements the values of static
financial plan can remain constant or unchanged whether sales amount or expenses fluctuate
(Talmon and Faliszewski, 2019). Having a static budget will enable companies to allocate funds
to certain operations which are supposed to stay constant within a defined time period for
accounting. With regard to the above-mentioned company, they can use this budget for activities

that remain unaffected in essence such as rent, service expenses etc. This method of budgeting
has certain advantages and drawbacks which are as follows:
Advantages: The major advantage of the static budget is that this is simple to implement and
perform, because values of this budget do not need to be continually updated during the
accounting periods as they are supposed to remain unchanged. Therefore, at the time of
calculating variance between different forms between events and activities this financial plan can
be applied by administrators.
Disadvantages: The biggest drawback to the static budget being the absence of adaptability.
When a company manages a budget centered on a predefined amount of income and in the case
when revenue increases then the additional money cannot be entered or updated in this budget.
As well as if a company finds an activity or operation that is underachieving, they cannot add
additional amount in the budget due to its static nature.
Flexible budgeting style- A Flexible Budget is a schedule which adjusts or flexes with changes in
amount of income and expenses or operation. It is more effective and useful in contrast to a static
financial plan. This budget tends to change with respect to the value of operation or tasks
completed. The manager should schedule this expenditure plan for all kinds of operations in
Uneek clothing that are likely not to stay constant such as commodity prices, labor costs etc. This
financial plan has some benefits and disadvantages, including-
Advantages: Flexible budget helps an organization to predict the degree of output and income
over a defined set of costs and operation (Malenko, 2019). With the help of this budget, it
becomes simpler for firms to make adjustments according to daily changes in various activities.
Disadvantages: The method of finding the elements of fixed and variable costs is always
subjective, and therefore the flexed expenditure has no relation with the actual planned amounts
of income and expenses.
Relation between budgeting and short term decision making.

There is a critical relationship between financial planning and short-term decision-making. It is
so because executives can assemble key knowledge about particular elements with the assistance
of multiple kinds of budgets. Such as cash budget offers a summary of potential income streams
and expenditures. Such knowledge can contribute to take corrective measures for the upcoming
time span. As in the above-mentioned company, its management can take short-term decisions
based on knowledge derived from different kinds of budgets. One of the main aspects of
budgeting is that due to the variety of the operation, there are a range of budgets. Such as sales
budget offers information about estimated cost of sales and projected revenues. As well as
purchase budget also lead to take corrective actions in accordance of predicted values.
As in the above-mentioned company, their finance manager takes decisions based of operating
budget for a short term of time because knowledge about specific functions and processes is
included in this budget for the coming periods. Long-term decisions are taken on the basis of
capital budgeting.
The impact of changing environments on various budgeting styles.
The environmental aspect contains a number of variables and each has the potential to affect
overall efficiency of companies (Bartocci, Grossi and Mauro, 2019). Along with corporate
budgeting models are also influenced by shifts in environmental conditions. In the above-
mentioned company their budgets may have affected due to factors like:
 Variation in demand- It is one of the key factors that may influence budgeting methods of
different kind of companies. This is so because if the need of the consumers’ declines
then the sales plan will be adversely impacted. As in Uneek clothing corporation above, if
they planned a sales budget for the forthcoming span of time that indicates good
outcomes and demand of customers’ for purchase pattern than business may face
difficulties and budget projection will be incorrect.
 Change in rate of interest- This element will impact a company’s cash or buying spending
plan. This is so because if interest rate rises in the future then projected sum of cash
proceeds may be incorrect as well and the business may face challenges with the

prediction of buying budgets. For instance, their various kinds of budgets may be
influenced in both positive and negative ways in the above business due to interest rate
increase or decrease.
The merits and demerits of participatory budgeting and its implication on business
performance.
Participatory budgeting- Participatory budgeting is a method in which an organization’s
workers become active in the revenue and expenditure projection phase (He, 2019). A
bottom-up approach to budget preparation contribute to create strategies that are more
practical than the top-down model which imposes central control over a company, with much
less participation by workers. This budgeting approach can be implemented in the context of
the above business and will raise employees ' productivity because they would be
participating in the budgeting phase. This form of budgeting has some advantages and
disadvantages that are described below in this way-
Advantages: Participatory budgeting certainly has many advantages, including the transfer of
expertise for monetary and goal planning from employees to superior. This could lead to
better employee engagement. In addition, under this budget subordinates provide chances to
directly meet the superior and discuss organizational issues to them. This will communicate
the expertise and ideas that can solve the problems in upcoming time period.
Disadvantages: Participatory budgeting has its unnecessary effects on an organization. Time-
consuming is the biggest drawback of the strategy of budgeting (Jain, Sornat and Talmon,
2020). This delay in process will occur because there are too many discussions are done
before making projection of income and expenses. Budgetary slackness is another drawback
of this type of budgeting. The reason of this issue is wrong estimation of income and
expenses for upcoming time period.
Implication of participative budgeting on business performance:

Such budgeting is important for enhancing companies’ efficiency in a planned manner. This is so
as workers get constantly interested in creating estimations regarding income and expenditures
(Patz and Goetz, 2019). Because of this worker get empowered as their interest rises in the
organization as well as they connect effectively to management which contributes to better
company results. Like in the above business, they should adopt this approach of budgeting to
improve their employees ' morale and allow them to prepare budget. Besides that, employee
participation can offer managers a variety of ideas and opinions on the setting up of financial
plans.
CONCLUSION
It can be inferred on the basis of the aforementioned project analysis that budgeting is an
important method for businesses in order to efficiently manage financial resources. The study
articulates numerous kinds of budgeting types such as static, stable, which are analyzed
objectively in a comprehensive way. The other section of the study addresses the relation of
budgeting in order to take strategic decisions that is available due to the details given by different
forms to budgets. It can be concluded from the end section of the study that participatory
budgeting is a positive method for businesses as well as for workers. As employees get
opportunity to prepare the budget along with managers.

REFERENCES
Books and journal:
Taschner, A. and Charifzadeh, M., 2020. Management accounting in supply chains–what we
know and what we teach. Journal of Accounting & Organizational Change.
Talmon, N. and Faliszewski, P., 2019, July. A framework for approval-based budgeting methods.
In Proceedings of the AAAI Conference on Artificial Intelligence (Vol. 33, pp. 2181-
2188).
Malenko, A., 2019. Optimal dynamic capital budgeting. The Review of Economic Studies, 86(4),
pp.1747-1778.
Bartocci, L., Grossi, G. and Mauro, S.G., 2019. Towards a hybrid logic of participatory
budgeting. International Journal of Public Sector Management.
He, B., 2019. Deliberative participatory budgeting: A case study of Zeguo Town in
China. Public Administration and Development, 39(3), pp.144-153.
Jain, P., Sornat, K. and Talmon, N., 2020. Participatory budgeting with project interactions.
In Proceedings of the 29th International Joint Conference on Artificial Intelligence
(IJCAI).
Patz, R. and Goetz, K.H., 2019. Managing money and discord in the UN: Budgeting and
bureaucracy. Oxford University Press.