Introduction to Management Accounting: Budgeting Process and Issues

This report provides a comprehensive overview of the budgetary process, detailing the sequence of steps involved, from updating budget assumptions to obtaining approvals and issuing the budget. It examines the critical aspects of financial planning, resource allocation, and control within organiz...Read More

Budgetary Sequence

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Explaining budgeting process sequence and describing the issues of the relevance in the
behavioural aspect in the process of budgeting...........................................................................3
REFERENCES................................................................................................................................7

INTRODUCTION
Budgeting deals with mapping all the expenses and costs incurred in the production of
products or providing the services. All the organisations are required to prepared the budgets for
proper allocation of resources where effective utilisation can be made of the budgets. Present
report is about the budgeting and the process involved in budgeting with the issues affecting the
budgets.
MAIN BODY
Explaining budgeting process sequence and describing the issues of the relevance in the
behavioural aspect in the process of budgeting
Budgeting refers to the process where the future income and an expenditure are been
decided for streamlining an expenditure process. It is done for keeping the track on the income
and the expenditure. It starts with deciding on the financial goals in accordance to which a
budget would be made (Gordon, Osgood Jr and Boden, 2017). The other crucial activities that
are involved in budgeting process involves the things like monitoring, evaluating, controlling,
forecasting the financial goals of the business.
Budgeting process tends to be critical for any type of the business organization. Without
the proper framing of the budget, business could not be able to trace the amount that is earned
and the spent by the company. Budget mainly serves as the great guide through which business
could oversee their income stream and could determine the potential dangers towards it
beforehand.
Moreover, budget acts as the most valuable tool that is been used for ensuring control
over the expenses by the business. It helps in making sure that the money has been spent towards
a right direction and the financial goals are achieved.
The budget is been framed or prepared by following the sequence or the steps that are as follows-
Step 1- Updating the budget assumptions
Budgets are always been prepared based on the certain assumptions or estimations. Such
assumption could relates to sales trends, environmental conditions or the cost trends (Wildavsky,
2018). Prior to framing of the budget, these anticipations need to reviewed thoroughly in
accordance to recent or present condition of environment.
Step 2- Assessing the the available financial resources

Limited funding could greatly hinder growth project of an organization. Therefore, while
preparing budget, appropriate attention required to be given to available funding as an
availability of an investable funds would identify an initiation of the viable projects.
Step 3- Determining costing points
The environment of the business is subjected to the dynamism and everyday it has been
been posed with the challenges that could entirely results in changing the cost structure. Thus, in
the process of budgeting there are certain factors which directly impacts costing of the business
must be analysed closely. Such actors need to be determined beforehand for the purpose of
making budget more and more realistic.
Step 4- Creating the budget package
In the budget package, standards that had been setted previously in relation to the process
of budgeting are been taken in respect of formulating the budget for a current period. Prior
standards are been updated as per the current environmental condition or circumstances. Budget
package is counted as an outline as per which the budget is been prepared.
Step 5- Obtaining the revenue forecast
It has been stated that the sales budget seems to be most critical budget among all kinds
of the budget. All the other budgets tends to be based on sales budget so it is very important for
an entity to obtain n accurate forecast relating to the revenue (Weiskirchner-Merten, 2019).
Further, sales budget helps in determining whether business is been generating sufficient revenue
for its long run survival. Therefore, it is crucial for an organization to pay an adequate attention
towards framing of the sales budget through forecasting the demand accurately.
Step 6- Obtaining the department budgets
After preparing the sales forecast, in the next step department budgets are developed that
will help in reaching to the budgeted expenditure for a particular budget period. Every
department would be preparing its budget and thereafter all the budget will combined in order to
become as the part of the master budget.
Step 7- Validating compensation
Plans in relation to compensation plays a significant role in the budgeting process as the
compensation is subjected towards an annual increase, thus, it need to be prepared with the great
care. Approval regarding increase in compensation has to be taken first from top executives and

after that it must be augmented within the budgeted or set compensation plans. It is also required
as the employees are motivated by increase in remuneration for their performance.
Step 8- Validating the bonus plan
Under this step for the purpose of maintaining morale of an employees, bonuses are been
given out to the motivated workers. It acts as the method of appraisal and if it is not counted in
the process of budget then it could create havoc in profitability of the firm (Mauskopf and
Earnshaw, 2017). Business is also required to assess the sources from which the bonus will be
paid to the employees.
Step 9- Obtaining the capital budget request
It ensue that the capital expenditures are made for the expansion of business. It aids
businesses in availing the various opportunities which are essential for the growth of business.
Plans for capital expenditures are required to be taken before the budgets are prepared by the
business. These are to be included in the budgets prepared by the organisation accordingly. They
are also required to calculate the costs related to the capital expenditures. Capital expenditures
are generally high therefore it is essential for making the correct estimates.
Step 10- Updating budget model
Changes in assumptions made in the budgetary models are required to be updated for
preparing the final budgets of company. Assumptions are an important part of budgets are
budgets are based over significant assumption. Any changes in the significant assumptions can
affect the accuracy and reliability of the budgets . Therefore all the updates in the assumptions of
budgets are required to be updated timely.
Step 11- Reviewing budget
After the budgets are prepared they are required to be reviewed thoroughly by the top
executives of business. The management are required to identify all the flaws existing in the
budgets and rectify them at time. A slight variations in the budgetary figures can cause
significant unbalance in budgetary sheets. Reviewing process has to be carried out by the
organisation with the utmost care and diligence as after that the budget will be passed by the top
executives of business for implementation.
Step 12- Obtaining approval
After carrying out all the budgetary steps given above the budgetary reports are presented to the
top level executives and management of business. They will evaluate all the estimates and

budgetary costs and expenditures for which the budgets have been prepared by company. The
approvals are made by the executives when all the required changes are made in the budgets.
After the budgets are approved they are finally implemented in the business.
Step 13- Issuing budget
Budgets after their approval are required to be issued formally by the business enterprise. All
operations related to the production of goods and services will be carried out accordingly
(Swensen, 2018). No operations can take place till the budgets are formally issued by the top
executives.
The issues of relevance in behavioral aspects of Budgeting process are been discussed below. It
includes the following issues:
Dysfunctional Behavior: As it has been analyzed that Budget can bring positive behavior in
between employees when their goals matches with that of organization. Fair Budget can lay
positive impact on mind of employees. But there might arise a situation where budget is not
being properly implemented, the expectations of management is unrealistic and sub-ordinate
manager’s reaction is also negative which can lay negative impact on organization for achieving
their goals and objectives. Such negative behavior can be considered as dysfunctional; this can
lead to organizational conflict.
Participative Budgeting: In this organization motivate employees to participate in budget
making process, this enhances morale of workers, but this aspect also has some negative impact
like top management has full control over budget making process, they might not be involved in
giving full authority to sub-ordinates that can hamper their mind set and their motivation may be
lowered down. Also if too many employees are involved in making budget then this can lead to
delay in budget making process and can create differences against members.
Excessive pressure created by Budgets: Budgets are being prepared so that each activity can be
effectively directed and controlled in organization. If the goals and standards set in Budget are
too firm to be achieved manager may lose interest which ultimately decreases his level of
performance. So Top management must be engaged in making realistic budget in order to keep
employees motivated (Chohan, 2017). It has been analyzed that no budget can be successful if

unrealistic expectations has been set in that and also employees are unwilling to accept it. For
this Company must lay special emphasis on motivating personnel’s in organization.
REFERENCES
Books and journals
Gordon, V., Osgood Jr, J. L. and Boden, D., 2017. The role of citizen participation and the use
of social media platforms in the participatory budgeting process. International Journal of
Public Administration. 40(1). pp.65-76.
Weiskirchner-Merten, K., 2019. Interdependence, participation, and coordination in the
budgeting process. Business Research. pp.1-28.
Wildavsky, A., 2018. Budgeting as a political process. In The Revolt Against the Masses (pp.
338-349). Routledge.
Chohan, U.W., 2017. Budget offices. Global Encyclopedia of Public Administration, Public
Policy, and Governance.
Mauskopf, J. and Earnshaw, S., 2017. Reporting Budget-Impact Analyses. In Budget-Impact
Analysis of Health Care Interventions (pp. 165-188). Adis, Cham.
Swensen, D., 2018. ALCTS Budget and Finance Committee-ALA Midwinter 2018.