Managerial Accounting: Budgeting Process and Techniques

This document discusses the budgeting process in managerial accounting and explores different budget forming techniques. It explains how budgeting satisfies the purpose of planning, controlling, and evaluating performance. It also comments on the limitations of traditional budgeting practices and recommends budgeting practices for contemporary organizations.

MANAGERIAL
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................2
.....................................................................................................................................................2
Describing the budgeting process...............................................................................................2
Explain how budgeting process satisfies the purpose of planning, controlling and evaluating
performance................................................................................................................................3
Explain two budget forming technique Identify and explain the practice adopted by the
organisation. Identify and explain the practice adopted by the organisation discussed in your
selected journal article.................................................................................................................5
Comment of tradition budgeting practices constraining on the creativity and time spent on
budget formulation is better spent elsewhere..............................................................................6
Recommended budgeting for contemporary organization..........................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
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INTRODUCTION
Managerial accounting is a practice of company in which the company tries to identify
measure, analyse and evaluate and interpret all the financial information to the managers so that
the company can attain the goals of the business. The use of managerial accounting is necessary
as this assist the managers and other employees to analyse the situation of the company and then
to take decision for the betterment of the company. The present study will focus over the
budgeting and different aspect of budgeting with help of article named the “The effects of budget
framing and budget setting process on managerial reporting. The present study will discuss the
different aspect of budgeting and its use in the business with reference to the article and its
details.
Describing the budgeting process
Budgeting is the process of planning the future business activities by establishing the
performance goals and then put them all in the formal plan. Every company uses the budget
process in order to meet the financial goals for a company. Also, the budget should describe the
management’s assumption which is related to economy of the company and plan for adding and
deleting the product lines etc.in addition to this, the budget is also serve as a great tool for
controlling as well as monitoring the overall business operation and it also set the target for cost
and revenue which must be attain through variety of ways by providing effective strategy and
also assist to smoothen the operations as well. Basically the budget process should take care of
the following condition such that:
 Top management support: Under this, the management of the company should make sure that
it aware with the importance of budget and they all must be aware of the long term goals for
which the budget is made (Tamaș and et.al.,2020).
 Communication results:People should also promptly and clearly informed the progress through
effective communication. Also, this effective communication also implies timelines and improve
understanding
 Follow-up: budget follow-up and data feedback are consider two important part for the control
aspect of budgetary control and it must be dealing with projections and estimates for future
operation results.
The five step of budgeting is as mention below:
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Update the Budget Assumption: It is analysed that the budget is always prepare with
certain assumption and those assumption are related to sales trend and environment condition.
That is why, manager must thoroughly reviewed the assumption as per the need and demand.
Available funding:It is determine that limited funding will definitely affect the growth of
the project and that is why, in the preparation of the budget, proper attendance should be
provided related to funding that help to determine whether the project is viable or not
(Dewi,Sugiarta and Suciwati, 2020).
Create budget package:in this process, previous standard related to budget process is
taken into an order to formulate the budget or the current period. Such that previous budget are
updated as per the situation and this step provide an outline so that budget will be prepared as per
the need.
Obtain revenue forecast:Company should make sure that while creating budget, there
must be proper profit and revenue is analyzed. Such that sales budget determine whether the
business is generating enough revenue as per the necessity or not. Hence, with proper attention,
the sales budget for forecasting is developed.
Obtain capital budget request: as per this step, company has to ensure that capital
expenditure is help to expand the business and it also assist to avail the opportunity which is
necessary for the growth. Because any capital expenditure should be taken in advance then it
should include the budget as per necessities. Lastly, issue the budget by taking an approval form
all the stakeholders.
Explain how budgeting process satisfies the purpose of planning, controlling and evaluating
performance.
Budgeting process generally allow the organization in getting better idea about the
different information related to the different aspect these eventually help the company in
planning the different activity more efficiently. As the article highlights that budgeting process
used to provide the good amount of the idea about the elicit information from different
subordinate which generally used to help the company in making different decision better way
which eventually help in planning different activity more efficiently in the organization this used
to give the evidence that budget processing in the organization used to help the company in
planning different activity of the company (Abstract of article, 2017).
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At the same time it has been also identified that bias subordinate can differ the planning
as per their view point, this used to impact the performance of the business in the negative way
in the organization. Budget framing in the organization used to help the company in controlling
the different activity of the company in a better way in the long, as it has been identified that
budgeting process in the organization (Tucker and Schaltegger, 2016). The article highlights
that this used to give the guideline to the organization about the standard and way sustainability
can be maintain in the organization for the same, generally all the organization used to compare
the performance of the business with the budgeting information of the company, on the basis of
the same organization used to make the variety of different sort of the decision in the
organization to maintain and control different activity of the business.
Article explain that budget process is the process in which the organization used to sets
the different budget and used to pass on the same to the different department and department
head in the organization used to consider the same and try to control the different activity of the
company in efficient way in the organization. Budget process in the organization also used to
help the company in evaluating the different performance of the business in the long run
(Abstract of article, 2017). As it has been identified that budget processing in the organization
used to help the company in finding out the deviation of the different performance which are
there in the organization, as it has been find out that budgetary process in the organization used
to contain multiple subsidiary section in three broad categories this used to find out that
difference between the actual and budgeted amount. As difference between Actual amount and
budgeted amount is the difference amount. This is the way different performances of the
business are generally evaluated in the organization. Selected article used to highlights that
budgeting process does not result in difference is overall slack of the subordinate. This
eventually used to means that budgeting processes help the company in evaluating the different
performance of the subordinate in better way in the organization (Fleischman and McLean,
2020).
After going through the different ways which are specified in the article about the way
budgeting process satisfies the purpose of planning, controlling and evaluating the performance
in the organization. So it can be said that budgeting process of help the company in planning the
different activity of the company but at the same time as budgeting is depended upon the human
interest in the organization it can diversify the result of the budget in their way in the
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organization, at the same time looking at the controlling aspect it can be said it help in
controlling the different activity in the organization, but at the same time used to increase the
variety of the efforts in the organization.
Looking at the performance evaluation aspect it has been identified that budgeting
process in the organization used to help the company in evaluating the performance in the
organization but at the same it also used to increase the efforts in the organization in context of
finding out the difference in the organization. The article highlights that there are three different
type of the budget frames in the organization i.e. honest, fair and preferred, all of this three type
of the budget frame work used to explain that budget generally used to include good sort of the
human interest preference in it show it can be said that it used to help the company in planning,
controlling and performance evaluation in the organization but at the same time human can
influence the outcome of the same in the organization (Abstract of article, 2017).
Explain two budget forming technique Identify and explain the practice adopted by the
organisation. Identify and explain the practice adopted by the organisation discussed in
your selected journal article
Top down budgeting is the budgeting method in which all the senior management
develops the different budget for the company. In this budgeting all the senior authority in the
business used to seat together in the organization and conduct the meeting, generally all the
departmental head and interested stakeholder are given the different invitation of the meeting and
on the basis of different approval by the senior management budget is generally form in the
organization. Once the top level member creates the budget in the organization different amount
are generally allotted to the different individual department or the functions that creates the
detailed budget with their allocation in the organization (Dekker, 2016). This is a method which
includes the use of the budgeting methods in which the management of the company prepares the
budget at the high level in order to attain the objectives of the business. The main objective of
making of the top down budget of the attainment of the company relating to the business. This is
majorly because of the fact that the company will make sure the all the budget are prepared in
proper and effective manner.
Another method is Bottom Up budgeting, this budgeting generally used to work as a
process in which individual in the organization used to assign different project number to form
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the total budget amount in the organization. In the bottom up approach all the individual
department in the organization used to create the individual budget in the organization and used
to send upward to the senior authority in the organization to get the approval on the same in the
organization. In simple words it can be said that this approach is the process in which different
pieces are fixed up together in to give rise to the perfect and good budget for the company. The
bottom up budget is very essential for the company as this will help the company in managing
the work in effective and efficient manner.
The first step is to identify the individual component of the business as here the company
has many different types of business components. The other step is to get the cost projection of
each department (Cooper, Ezzamel and Qu, 2017). This is very essential because of the fact that
every business includes the different components and this includes the different cost of every
department. Further all the different budgets of all the department of the business and then sum
the total of all the budgets. In the end the approval on this budget is taken from the higher
authorities and this will make sure that the budget is made for all the different departments of the
company so that all the department are working in effective and efficient manner.
Comment of tradition budgeting practices constraining on the creativity and time spent on budget
formulation is better spent elsewhere
The traditional budgeting practices involve the estimation or the projection of the sales
and revenue and the estimated or expected expenses which the company may face in the near
future. In the traditional budgeting methods the main focus is only on the study of the past record
to predict the future trends and sales that may happen if all the things go well. But with the
development in the business environment and technology there have been huge development.
Thus, because of this there are many different techniques and methods of predicting the future
trends and information. Thus, the modern techniques will help the company in getting more
knowledge relating to the use of budgeting and the ways through which the company can predict
the future trend and expectation of the company with respect to the income and expenses
(Messner, 2016).
It is true that the traditional budgeting practices are constraining the creativity, time and
energy which the budget maker can apply to some other places. This is majorly because of the
fact that with help of the modern technology the people can easily predict the future trends and
this will be very time effective and also it will take place with help of the technology so there
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will not be any chance of mistake or any error. Thus, this is more there in the use of the
traditional method of the budgeting. This traditional method consumes a lot of time as the budget
maker will first analyse the past records and information and then it will be analysed and
evaluated and then in the end the future trends will be forecasted (Maas, Schaltegger and
Crutzen, 2016). But in case of the modern technology relating to the budgeting all the things are
already there and the people just have to enter the data and all the trends will be automatically is
listed in form of charts and graphs. Thus, this future estimation will be more creative and much
clear and this will help the budget maker in predicting the future income and expenses in more
relevant and good manner.
Thus, it can be said that if the budget planner are using the traditional methods for the
making of the budget then it is worth good for the planner to use that time in some other activity
as it is a waste of time for the company and the planner as well (Hopper and Bui, 2016). This is
majorly because of the reason that the use of the traditional method for the budget preparation is
very time consuming and if this time would have been used in some or the other activity then it
would have yielded more good work. Hence, it is advisable for the company that they go for the
use of modern budgeting tools and techniques as these are cost savvy and also consumes a very
less time as compared to the traditional methods of making and preparing the budget.
Recommended budgeting for contemporary organization
From all the above discussion and analysis yes it is advisable for the companies to make
use of the budgeting for the purpose of planning and controlling of the company. This is majorly
because of the reason that the budgeting is a good tool for the companies to plan and control all
the business activities within the success of the company. This is majorly because of the fact that
the company has to plan all the things in advance and the budget is a good tool for planning the
business performance. This is majorly because of the fact that when the business is operated the
success of the business is seen or evaluated with help of the income and expenses earned and
incurred within the company (Quattrone, 2016). Thus, the budget is also a plan or estimation of
the possible income and expenses of the company. Thus, this help the company in effectively
plan for all the possible source of income and the areas wherein the expenses can occur.
Also, this is a good source of controlling the business activities as well because the
budgeting also help the contemporary organization in managing their performance in good and
effective manner. This is majorly because of the fact that with help of the budget the company
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has made an appropriation that they have to at least attain that much level of performance. So
this helps the companies in controlling the business activities and process (Bromwich and
Scapens, 2016). For instance, if the company has estimated that the sales will be at least 12000
units and if in actual the sales are around 10000 then the company can take measures in order to
bring the sales till 12000 before the estimated time lapse. Thus, the budgeting is also a good tool
of estimating the fact that whether the actual performance is taking place as per the budgeted
performance or not. Thus, if there is any deviation in the budgeted performance and the actual
performance then the corrective actions need to be taken for getting success.
CONCLUSION
In the end it is concluded that the managerial accounting is very essential to be used by
the companies in the managing the business activities and the decision relating to the business.
The use of the managerial accounting is very essential for the company to use this for the
decision making of the business. The present study outlined the analysis of the budgeting and the
uses of the role of the budgeting in managing the business strategies.
The present report also discussed the budgeting process which includes five stage
processes. Further the selected article was discussed that whether the budgeting process satisfies
the purpose of planning, and controlling. It also discussed about the fact that traditional
budgeting practices constraint the creativity ad time and energy and use this time in other activity
of the business. In the end the it was highlighted that the budgeting is very essential for the
contemporary business to plan and control the working of the company.
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REFERENCES
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in Fox Harris Hotel Jimbaran Beach. Journal of Applied Sciences in Accounting, Finance,
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Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
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Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research. 31. pp.103-111.
Quattrone, P., 2016. Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research, 31, pp.118-122.
Tamaș, A.S. and et.al.,2020. Planning, Budgeting, and Green Controlling: The Budgetary
Process of an Economic Entity. In Management Accounting Standards for Sustainable
Business Practices (pp. 52-79). IGI Global.4
Tucker, B. P. and Schaltegger, S., 2016. Comparing the research-practice gap in management
accounting. Accounting, Auditing & Accountability Journal.
ONLINE
The Effect of Budget Framing and Budget-Setting Process on Managerial Reporting, 2017
[ONLINE]. Available through <https://doi.org/10.2308/jmar-51535>.
Abstract of article, 2017..[ONLINE]. Available through
https://meridian.allenpress.com/jmar/article-abstract/29/1/31/80784/The-Effect-of-Budget-
Framing-and-Budget-Setting?redirectedFrom=fulltext.
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