Managerial Accounting: Budgeting Process and Practices

This document provides an overview of the budgeting process in managerial accounting, including the definition of budgeting, steps involved in the process, and its importance in planning, controlling, and evaluating performance. It also discusses top-down and bottom-up budgeting practices and evaluates the traditional budgeting approach. Recommendations for budgeting in contemporary organizations are provided as well.

Managerial Accounting
1

Contents
Contents...........................................................................................................................................2
INTRODCUTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Explanation of budgeting process................................................................................................3
Explanation of how budgeting process satisfies the purpose of planning, controlling and
evaluating performance...............................................................................................................3
Explanation of to down and bottom down budgeting practices..................................................3
Evaluation of ‘traditional budgeting practices are constraint on creativity, and the time and
energy spent on budget formulation is better spent elsewhere’...................................................3
Recommendation related to budgeting for contemporary organisations for planning and
control purpose............................................................................................................................3
CONCLUSION................................................................................................................................3
REFRENCES...................................................................................................................................3
2

INTRODCUTION
Managerial accounting is a process of identity, organizing controlling and interpretation
accounting information in a way though which manner able to take effective a successful
decision for business organization though which they can attain their predetermine goal. Various
tools are used by mange in this process . Budget are most essential method of managerial
accounting, In order to understand the concept of budget, review of Budget Efficiency for Cost
Control Purposes in Management Accounting System article written by Klychova G.S.,
Faskutdinova, M.S, Sadrivea . R all belongs from Kazan State Agricultural University Kazan,
420015,. The article published in Mediterranean Journal of Social Sciences, MCSER Publishing,
Rome-Italy. In this article , meaning of budget, process of budgeting, importance of budgeting in
planning, performance measurement and controlling proceeds has been identify in brief manner.
This reports also contains Uses of traditional budgeting and impact of modern budgeting
technique the organization in brief manner.
TASK 1
Explanation of budgeting process
 Budget can be defined as the planning of business activities which is related with
the future. It is a statement which shows the profit and loss expenditure in as
numerical data. Budget is prepared on the basis of data collected form prior
performance of business organization (Makarenko and Makarenko, 2018). It is the
essential part of management accounting procedure as mangers take decision on the
basis of budget information and it is used for proper allocation of economical
resources within the business organization. According to the journal article of
budgeting efficiency for cost control purpose in management accounting system,
Budget is a statement and procuring of preparation of budgeting is known as
budgeting, this technique is used for finding and set parameters, planning,
3

movement and allocation of resources . It is a technique of analysing commercial
activities though which organization il be able to gerante profits .
budgeting is essential part of managerial accounting process and they use following
procedure for preparation of budget
 Defining budget objective: Budget process start end with operational planning. In
this process common goals are decided on the basis of which budgets are prepared.
In this process managerial goal are set it will help in identify resource requiem
during the overall budget process.
 Access historical and actual data: In the next step mangers collect data and
analysis their past performs of business activities. Managers able to understand in
which activity they need to focus to earn more profit and control cost.
 Developed base budget: In next step a base budget has been prepared which
provides basis guideline of management accountant through which they can
recognize all the activities and expenses incurred in future (Jie, Xi and Chaoyang,
2015).
 Access data and prepare budget: On the basis of based budget, managers
prepared their real budget for this purpose they use modern and traditional
budgeting techniques it is totally depend on the side of business organization and
mangers type of approaches they choose of preparation of budget. In most of large
organization use activity based budgeting technique.
 Review budget: After preparation of statement of budget, managers revise the
overall budget and check if any activity is not left doing the prepetition of budget.
 Monitor budget process: Budget is most essential part of managerial accounting.
On the basis of budgets, each and every activity of budget are monitor (XI and
XU, 2013).
Explanation of how budgeting process satisfies the purpose of planning, controlling and
evaluating performance.
Business organizations use different types of budgets. Theses budgets are useful for planning,
controlling and performance evaluation process. There will be many types of budget are prepared
which includes, master budge, capital budget, planned budget, financial and operating budget.
With the uses of minster budget organizations will be able o make future plans and plies.
4

Manager prepared operating and capital budget to evaluate the cost incurred in business
activities. They also prepared of financial budget though which they can able identify
performance of their departments. Budget help in evolution of performance also. Budgeting
procedure includes planning for future business profitability. Because it is at the primary object
of every business
Organization to generate profits. Budget help in operating plans , formalized plans of
management department in numerical terms. It also force and engaged every department of
business organization to think about future business .And take action to cut throat eh errors. They
move organizations of achieve the goals. With the uses of budget , departments will be able in
better coordination procedure. Market insecurity makes it required to estimate the opportunity,
foresee probable change in industry situation by
Means of proceed forecast and monitor, i.e. by budgeting.
budget system cover the in general venture, with manufacture, sale, allocation, economics, as
well as Departments concerned in certain types of financial, profitable and manufacture actions.
budget are built-in in the majority of enterprise monitoring systems and are widely used in
standard cost accounting and computation. Budgets can be of a variety of type and forms; divide
budgets, characterize intervening dealings (purchase of rare materials, production budget, etc.),
may enclose in order on charge or revenue only (sales budget), while Consolidated budget
(profit and loss account, cash budget) show expenses and revenue of the project. Every
Enterprise chooses a meticulous shape of budgeting on its own. As a law, budget era cover short-
term aspect of forecast (year, quarter), though, budgets commerce with capital
savings are drawn up for a longer time of time – five, ten lifetime.
Budgets, characterize production and sale costs or cost applied to begin of novel scientific
process (raw materials purchase budget, managerial and commercial expenses budgets, labour
financial plan, etc.) are based on sale
budget. Materials purchasing (utilization) budget specifies purchasing provisos and the amount
of raw materials, materials, semi-products that require to be purchase to fulfil production task.
The amount of materials required to achieve Planned manufacture figures is calculate in the
following way: materials required for planned output minus equipment in Stock at the start of
the period. multiply number of material unit by purchase charge we get materials
purchase(utilization) financial plan (Makarenko and Makarenko, 2018).
5

Labour budget specify required labour time in hours obligatory for planned output and
premeditated by multiply the quantity of manufacture units (works, services) by labour cost
standard in hours per merchandise unit (works, services).
common production expenses budget represents detailed plan of estimated making payment that
cannot be immediately included into the cost of a meticulous cost holder (maintenance costs,
depreciation of fixed assets of industry-wide application, etc.).Cost of sales budget is based on
the following formula:
.Managerial expenses budget include a map of current operation expenditures at variance from
expenses directly (Heyder, 2015).
Associated with manufacture and sale but obligatory in the future period for maintain business
performance.
According to the article the main aim of budgeting is increasing the profitability, making
reasonable decision regarding investment by formatting effective working management policies.
Budgeting is the best tool of managerial accounting for organizations to enhance their
performance by understand and allocate where, how organization allocated resource are allocated
with the business activities. Budgeting use it maintain coordination between departments and
plan and approach plan through which they can cut the cost and save profits a. It increase the
effectively of business organization with the uses of portfolio analysis and optimize its
result .Budgeting help in controlling activities by identifying financial flows, and secure changes
of business organization structural buy using modern management accounting technique.
Budgeting is a method of financial planning, cassette and monitor expenditures and income gain
from
business-related activities at all level of administration and allowing analyzing of forecasted and
achieve monetary
Performance. It is a practice of elaborate, execute, monitor and analyzing of monetary plan
covering all sphere of
business actions and allow comparing all costs incur and results achieved for the pending period
overall and for
6

Divide sub-periods. Budgeting help in planning process it conceited with manufacturing process
with financial process of business organization. Budgeting is a procedure of deigning parratmes
plan the movement of resource of business organization for future time period. The reduction
cost budget is prepared on the basis of livestock production pan which present he average stock
of live good. Budgeting procedure is the bas of planning controlling and performance evaluation
process. On the basis of budget data mangers able to plan for their future policies and strategies
of business organization. They can able to measure performance analysis performance of actual
target achieved and budget trite of business organization. They can identify financial statement
an operating budget to measured performance of organization. Budget is a linkage between
planning and controlling process as worth the use of effective management account attracting,
benchmarking, financial governance or performance evaluating technique budgeting is useful for
effective controlling process also (Yanlin and Lu, 2014).
Explanation of to down and bottom down budgeting practices
There will be 2 types of budgeting approaches are used by business organizations during the
partition of budget. As per the article journal, under top down method the senior management
prepares a high level budget on the basis of the company’s objectives. Top management then
allocates amounts for the individual departments who use those numbers to prepares their own
budget. In this process decision on targets has been taken. And then department budget
submission is given to fiancé department and budget put into the system. Top down budgeting
useful in focus ion overall growth, quick way of preparing budget , save times and resources of
lower management and less traditions approach. But this approaches also have some
disadvantage, it is not useful in motivating employers,. The whole procedure is taken and control
by senior management department, it may lead over and under allocation of resources. In this
budgeting method once the top level of numbers are created by management department then
theses are allocated to personals functions for creating a detail budget with their allocations of
resources and activities. During the preparation of this budget management department take past
experience and use present market situating data. They take previous type performance as
benchmark for each department .on the other side bottom up budgeting starts at the lowest level
of the organization and works upwards. A budget is decided by lower level management and
then presented to top level of management for approval (Yanlin and Lu, 2014). Lower leave
m,angemtn drrpatent hacve more relate an accurate information and they have more knowledge
7

regarding the market condition ad requirement of resource and materiel used firing though
manufacturing process the they made budget through which organization fulfil requirement.
Increase motivation due to ownership of budget. Upper management can concrete more on other
strategies. Budget holder have the opportunity to participator in setting their own budgets .But
these types of budget re not line with cooperate objective . These types of budgeting approach
also known as zero based budgeting . According to the article journal bottom up method is
required for financial accounting information and collect data form every responsibity centre
thigh which they can provide reports on the bias of comparison. Activity based budgeting
method useful go attract funding, debt financiering Nan managing reosuebnin effective manner.
Evaluation of ‘traditional budgeting practices are constraint on creativity, and the time and
energy spent on budget formulation is better spent elsewhere’.
Traditional budgeting is a method of preparation of the budget in which last year ‘s budget
is taken as the base . Only those items in traditional budgets need to be justified which are
over and absolve the last year’s budget. Budgeting is the process of preparation of plan and
procedures for business organizations. In traditional budgeting approach managers can
easily evaluate their pat performance and prepared budget on the basis of data collected
from past budget. Traditional budgeting is easy and effective method It brings stability in
the functions of organization. As the entire department have idea regarding the budget
policies and retied rue thus vast on training and formulating of budget for reafucinh is not
incurred. It will help in decentralization process. Traditional budgeting approve helpful in
consolidate rejects’ into larger one (Fontaine, 2018). IT is easy to preen. Traditional
budgeting method is helpful for small business organizations and those business entities in
which products are prepare on simile bas does not affected it the changes of technologies
in the rake environment. This method is convenient got the business organizing and it is
essential tool of magnet accounting. Mangers use traditional budgeting process this it will
help in coshing their time which they will use in formation of other policies and marketing
stagiest. Traditional budgeting method proved strong base for organisation and onto bas of
tradition bought mangers will be able to anywise prevail years errors and most by them so
that they can change some policies to recover all the error. Even though traditional
budgeting method is convenient for business organizations but due to changes of times and
8

technologies modern managerial accounting technique has been developed and theses
technique are used a replace the traditional budgeting method. There are so many
drawback regarding traditional budgeting approach this is essential for the busies
organizations management department to change procedure of budgetary .With the
changes of time and technologies new budgeting concept and method are developing with
includes top down , down up method, rolling, methods of budgeting all the budgeting
method aha a systematic format to prepare of budget. According to activity base budgeting
in this method budgets are prepare on the basis of location of activated and resource. I zero
bees budget as formulate budget mange on the bi of initial lee and deep research collection
of data. In rolling method budgeting prepare on the basis for short term time periodic and
change them on continuous base. All these methods are known as modern methods of
business these methods are used it the other technique of management accounting to
provide article information and help in changing organization goal in effective manner
(Belyakova, Petrova, and Polyakova, 2017).
Traditional budgeting unable to proved accurate data as it is hard to formulate budget on
the of proper performance because time changes and technologies change with perception
of customers also changes thigh it is not require that proper policies effective for future
business activities. Traditional budgeting is based on past performance and provide
various benefits but these are fixed they are not flexibilities and adapt changes in
technologies. They focus on the excessive of past performs a not provide for allocating of
resource. Thus it is required for every business organization to use modern techniques of
budgeting though which they can able to identifying accurate and reliable information
regarding their future income and expenditure of business organization. AS they take
decision on the basis of budget and invest in various projects on the basis of data collected
from the budgetary method .To will help in aching their predetermine business objective in
efficient manner and allocate resolver though which they able to earn more profits.
Traditional budgeting approached can be provide effective solution but these are not useful
in modern word thus it require modern solution and uses of effective and attractive
business organization technique through which they can able to gerante gain (Jie, Xi and
Chaoyang, 2015).
9

Recommendation related to budgeting for contemporary organisations for planning and control
purpose
Budget is a statement which issued by mangers to determine future income and expenditure. It is
the base of future planning and controlling activities. Following are the recommendation
regarding planning an controlling
For contemporary business organizations they need to use bottom down method of budgeting.
Manager use effective managerial accounting technique for performance measurements,
benchmarking, .They need to use modern controlling technique , 360 degree analysis,
performance measurement, internal audit (Sherly, 2015).
Business organization use effective and short-term plans on the basis of environment scanning
process. The formulate policies after considering market condition of business organization.
They need to use budgeting process in effective manner .Planning should be based on taking
consideration of past perform also. Every department should b part of planning process.
Controlling process is used for in enhancing perforce of department resource of business
organisation (Heyder, 2015).
CONCLUSION
From the above analysis it has been concluded that managerial accosting is a special branch
of accounting. Which is used by manger to take decision in effect manner by using tools of
managerial accounting. Budget is a method of management accounting each provide
primary basis to planning and policies for business organization. Budgeting useful for
panning organising, directing an controlling activities with managerial the cost and
appropriate allocation of resource with the changes of time modern method of budgeting
take place of traditional budgeting activities to provide more reliable result to business
organization.
10

REFRENCES
Books and journals
Makarenko, E. and Makarenko, T., 2018. The need of economic indexes' interpretation from the
perspective of managerial accounting. In Scientific achievements of the third
millennium (pp. 42-45).
Jie, Y., Xi, C. and Chaoyang, X., 2015. Does Managerial Self-interest Lead to the Corporate
Herd Investment?. Communication of Finance and Accounting, (9), p.20.
Heyder, G., 2015. OUTSOURCING ACCOUTING-BENEFITS AND LIMITS IN THE
CURRENT ECONOMIC ENVIRONMENT IN IRAQ. Национальная Ассоциация
Ученых, (2-1), pp.87-89.
Yanlin, W. and Lu, X., 2014. Board Governance, Managerial Overconfidence and Investment
Efficiency. Review of Investment Studies, (3), p.8.
Fontaine, R., 2018. Management Accouting Graduates Need to Learn How to Communicate
Informally, with Empathy, Pertinence, and Clarity: A Practitioner’S
Perspective. Pertinence, and Clarity: A Practitioner’S Perspective (January 11, 2018).
Belyakova, N., Petrova, E. and Polyakova, O., 2017. The influence of professional deformities
(burnout) on the image of a female leader. Economic and social development: Book of
Proceedings, pp.324-331.
Sherly, S., 2015. Pengaruh Mekanisme Good Corporate Governance Dan Kondisi Keuangan
Perusahaan Terhadap Pemberian Opini Audit Going Concern Dengan Ukuran Perusahaan
Sebagai Variabel Moderating. Jurnal Magister Akuntansi Trisakti, 2(2), pp.161-182.
XI, Y. Q. and XU, X. D., 2013. Comparative Study of Performance Change Issues Related to
Growth Enterprise Markets and SME Board Listed Companies after IPO. Journal of
Anhui University of Technology (Social Sciences), (2), p.1.
Makarenko, E. and Makarenko, T., 2018. The need of economic indexes' interpretation from the
perspective of managerial accounting. In Scientific achievements of the third
millennium (pp. 42-45).
Jie, Y., Xi, C. and Chaoyang, X., 2015. Does Managerial Self-interest Lead to the Corporate
Herd Investment?. Communication of Finance and Accounting, (9), p.20.
Heyder, G., 2015. OUTSOURCING ACCOUTING-BENEFITS AND LIMITS IN THE
CURRENT ECONOMIC ENVIRONMENT IN IRAQ. Национальная Ассоциация
Ученых, (2-1), pp.87-89.
Yanlin, W. and Lu, X., 2014. Board Governance, Managerial Overconfidence and Investment
Efficiency. Review of Investment Studies, (3), p.8.
11