HI5017 Managerial Accounting: Budgeting Concepts, Applications & Case

This report provides a detailed explanation of budgeting concepts and the factors determining its successful application. It reviews the limitations identified by modern economic theorists and analyzes two budgeting studies, highlighting their similarities and differences. The report also includes a case study on Quested Communications' use of budgeting principles to expand in Nigeria, evaluating the learning that can benefit other companies. Topics covered include defining budgeting, business systems using budgeting methods, types of standard costing, and important research questions related to budgeting. The report concludes with recommendations for effective budgeting practices.

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Budgeting
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Executive Summary
The report presents a details explanation of the basic concepts of Budgeting and the various
factors that determine a successful application of the process. The modern economic theorists
have identified certain limitations to the process which have been discussed in the report. The
report is a literature review of two studies based on Budgeting and the similarities and
differences between the ideas that have been expressed in the report have also been identified. In
the last section of the report, there is a discussion of the Budgeting principles that have been used
by Quested. Communications to expand their business in Nigeria and evaluates the learning that
can help other companies to develop their businesses.

Table of Contents
Introduction......................................................................................................................................3
Defining Budgeting.........................................................................................................................4
Business Systems that can Budgeting methods...............................................................................4
Types of Standard Costing...............................................................................................................5
Important Research Questions.........................................................................................................7
Similarities in the Budgeting Studies..............................................................................................8
Differences in the Budgeting Costing Studies.................................................................................9
The case study budgetory control.................................................................................................10
Recommendations for Budgeting..................................................................................................11
Conclusion.....................................................................................................................................13
Reference.......................................................................................................................................14

Introduction
Time and Money are very necessary resources for all organizations and persons, the must be
Used with effective and efficient planning. A budget is a part of planning that helps the
Company to achieve its objective in minimal cost. Budgeting is the quantitative pan for future
Forecasting. Mostly budgets are based on experience that can be adjusted in future requirements.
Accounting Data of past time plays an important role in budgeting preparation.
The accounting information and budgets are closely related to each other. Budgeting involves
The financial and non financial planning to achieve organization goals and objective.
(ROSEMARY PEAVLER) A budget is that part of planning which define the organization
financial position, evaluate the PERFORMANCE of the company. Budgeting plays a very
important role for any organization to know about capital investment and expenses control.
Budgeting
Budgeting is the planning process to spend your money. This plan of spending money is called
Budget. If budget plan creates it, help to determine in advance whether you have money to
Spend on those things, which you like. It helps to planning about future needs and enough
Money to spend on these things. A budget predict the financial position and financial results of
The company for one or more than one future period. A budget contains income statement,
Sale forecast, working capital, cash flow forecast and many more things. Now a day’s mostly
Budgets are prepared on electronic spreadsheets. Budgeting is the process for preparing the
Detail information about financial statements that cover a given time in the future period. It
Helps the organizations to set their targets and achieving the goals from these targets.
Organization that is failed to set their budgets remain failed to achieve its goals.
50 20 30 Budgeting
It is the unlimited life plan for the money “the basic rule is to divide after tax paying 50%
Spending on needs 30% spending on wants and have to save 20% (By Eric Whiteside)
Budgeting Time Period
Budgeting can be prepared for Short run, mid-range, or longer term time periods. Common
Timing periods for budgeting is monthly, quarterly and yearly. Budgets can be prepared for
Using historical results, management and knowledge of external events. For Example Sale
Targets in company helps the employees to set their targets and achieving the goals from
Target sets, and when they are expected to achieve them.
Budgeting and financial forecasting
Budgets are very first step of a company in financial forecasting. Budget made by the company
Reflect the company targets and the goal of the company. The forecasted results compared

Monthly, quarterly and yearly to know the exact condition of the company. Budgets are made
To develop looking financial statements. : The balance sheet, cash flow statement, fund flow
Statement and the income statement. Some organizations prepare budget for five years but for
Such a long term budget organization has to suffer because of unpredictability of future over
Five year. Budgets are also helps to project the level of assets and liabilities that you have to
Expect in the future, as that is shown in the company balance sheet to know the position of the
Company Cash flow statements are very important in budgeting. If you have good financial
Budget you can have more control over your cash flow statements of the company in the timely
Manner.
Types of Budgeting in Business
Companies mostly have a master budget that can capture the financial target of the entire
Organization. Mostly firms develop more detailed budgets in secondary level. There are three
Most important types of budgeting are as follow:
Capital Budgeting: Capital budgeting is very helpful in creating plan for long and large
expenses
In a firm. Capital budgeting find out the fixed assets and such new building or expensive
Equipment. It is that process of budgeting or estimation of the cost to expand and replace fixed
Assets.
Capital Bugeting
Operating Budgeting
Cash flow Budgeting

Operating Budgeting: The operating budgeting as a part of income statement, this is starting
With the sales forecasting of the company. When the budget of sale revenue deduct from the
Cost of goods sold and selling expenses mostly end up at net profit. In the operating budgeting
Sale revenue and expenses of the company support that level of sales that is helpful for
Achieving the profit goal of the organization.
Cash flow budgeting: The cash flow budgeting define the expected cash inflow and outflow.
Cash flow budgeting shows is the company has enough cash to meet with its daily routine
Requirements. If not, the cash flow budgeting revels how much and from where the cash will
Borrow. If you company have not much money to meet its expenses.
Important Research Questions
Budgeting is a process that is being used by business organizations for short, middle or long
Time. It has been found out to be the most effective process to estimate the expenses of the
Company can make in limited or unlimited time. As budgeting is the main process for every
Organization to achieve its goals in well manner way to utilizing their capital in well effective
Way. (Quadtone, 2016
 Nature of Budgeting: In the process of Budgeting, the costs are determined much before the
actual spending takes place. However, these budgeting can fluctuate depending upon the
estimation of expenses and the way how an organization spent these expenses... As a result, it
cannot be considered as the best approach to determine the cost of a process without taking the
present market scenario in consideration.
 Selection of Budget Type: There are a number of Budgeting types out of which a company needs
to select one in order to make an estimate. The problem with this part is to select the type of
Budgeting that will be appropriate for the particular organization and can give the most practical
figures. If we want to see the inflow and outflow of the cash and expenses of the company we
have to chose cash flow budgeting for capital investment we have to choose capital
budgeting(Dai, Free & Dendron, 2018).

 Development of a good Budgeting standard: In order to develop an ideal Budgeting, it is very
important that the management and the labor should believe in the goals that are set. For it, the
goals need to be practical according to the market and company
 Standards. (Van der Steed, 2016).
 The inefficient timeline of the process: The timeline on which the budget calculations are made
is dependent on a process that takes a very long time to be completed. The estimated costs of the
process are identified well in advance but the actual process of spending on the production is
completed much later. If we made budgets for more than 5 years it can be the inefficient because
every year requirements of the company changed and with changing all expenses are also
changed.
 Changing Capital investment: The investment of company is always changed. Sometime
company has to buy fixed assets sometimes spending money to other expenses so budget should
be flexible to accept these daily changes in the company (Ax & Grave, 2017).
Similarities in the Budgeting studies:
Articles on the Budgeting process:
 Budgeting process is the most important component of management system. It provides
planning, coordination and control for the management.
 In the public sector, the process of budgeting is even more difficult as compare to private
sector .It is very difficult in public sector to define a quantifiable way as compare to private
company.
 Objective of private organization is earning profit so preparation of budgets is easy in this
organization whereas in public sector such as hospital etc it takes almost one month time for an
appointment. This is difficult to define it ion quantifiable way, and it is actually difficult to
achieve its target.
 In the private organization budgets can be prepared in term of sales revenue, so it is very difficult
to define a quantifiable relationship between input and the output.
 So what is easier to compare is Private sector takes less time and can make more effective budget
that can be flexible change when need arise.
 Budgets naturally focused on the inputs alone, rather than to tell relationship between input and
output.
DIFFERNCES BETWEEN BUDGETING STUDIES
Public Sector Private Sector
Budgeting process is difficult in public sector as compare to public sector it is easy for private
sector for preparing budgeting

Budgets of public sector is less flexible and
difficult to change
Budgets that are preparing in private sector in
very flexible and can be changed according to
time and situation
Public sector mainly focused on cash inflow In private sector cash flow statements are
prepared to find out the cash inflow and
outflow
Mostly budgets are made for long term that
can be less effective
Budgets are prepared for short, middle or long
run according to the needs of the organization
Incremental Budgeting
Incremental Budgeting is very traditional or oldest method of budgeting where budget is
Prepared according the current period budget or actual performance as a base, with
Incremental amounts that can be added to the new period of the budget. Most important
Disadvantage of incremental budgeting is this is not working at the time of inflation. Current
Year budget or actual performance is starting point only nothing else.
Case study budgeting
KATIE’S budget reality check
Katie a 19 year old university student. She is money smart’s budget planner really who can be
Able to opened the eyes of every individual .She always saved more than $10,000 from many
Previous years form her 6 hour job but she wants to saved more money for her future needs
And urgency helped her to get a saving plan together, she want to save more money to put
Towards a deposit on a flat about 5 year time
When she puts her earning and spending into the budget planner she got it is pretty eye
Opener for her. She lived at a home with her mom her with small costing and expenses but it
Surprised her that the planner showed that nearly 80% of her wages went on shopping. She
Was surprised that her weekly dinner and friends at the Mexican restaurant and lunch and
Snacks during the week, total nearby $6000 a year. She Chat with her friends that are also
University students and also from same salary and same job. They did not realize that
These cost would add up so much. (Katie)
Here are some ways which she plan on spending:
o Limited herself on monthly budget
o Pack snacks and lunch from home. Do not buy these things from outside
o Put together a saving pan
Recommendations for Budgeting

The important aspects of the Budgeting report and its application in order to earn profits that was
used by kite case study, Australia have revealed the following outcomes:
 The method of Budgeting can act as a very important yardstick for a company to measure their
performance. If used correctly and by including all the details of the process, it can act as a
method to check the expenditures and can also motivate the workers of the company for planning
abutting budgeting and giving rewards from the capital of the company.
 A Budgeting report can help a company to understand the actual concept of expenses in long
short and medium run. It can help the company to differentiate between the ventures that can
actually be profitable for them and the ones that will only help in generating an overall profit for
the company.
 The data that a company will need to collect in order to make an accurate Budgeting assumption
cannot be limited to the financial reports of the company. Instead, it is also very important to
forecast the budget of the company and invest according to the budget of the company (Jake,
Mahlendorf & Weber, 2014).
 It is very important for companies to constantly update the Budgeting methods that they are
using. The capital budgeting is used in long run business, cash flow is used when inflow and
outflow of the cash can be measured.
CONCLUSION
The analysis of the report of budgeting showing that why budget is important in all organization.
 Why budgeting is important in organizations
 Potential hindrances in budgeting
 Prepare and write budgets
 Monitoring the budget
 All learning from the process
 New techniques and methods of budgeting
After completing the all report now feel comfort enough to start budgeting techniques for
whatever
Task needs to be complete. You should be able to learn:
 Different types and method of budgets
 Collect all information to collect the budget
 Estimate your expenses
 Submit budget submission
 Identify discrepancies
 Monitor variances and take control when necessary
 Estimate all budgeting methods Reference
 The report analyzes the importance of the Budgeting methods that companies use all across the
world in order to measure the profits that they are making. However, with the changed market
patterns, the process of Budgeting has become more complicated and difficult due to which a
number of scholars have presented doubts about the validity of the system in the present business
scenario.

 There is a very strong need to alter the concepts of Budgeting in order to make sure that the
process is valid in context to the present changes. The way in which case study, Australia has
used the system can provide an outline for the changes that need to be made to ensure the
validity of Budgeting in the current times.
Budgeting is the very short, medium and long term process. It can be of 5 years but such a long
term
Process cannot be successful. So budgets can be made according to organizations needs and
flexible so
It can be changed according to needs. Contrary to the earlier times, the life span of the products
That we use these days is much shorter. Further, the rapid technical advancements make the
utility
Of the product last for a comparatively much shorter period of time. If the budget of the are
Not changed with the changing patterns of production and consumption, the estimates made
cannot
Be correct (Ax & Grave, 2017).
All the process of budgeting define as private sector budgeting is most effective than the
budgeting of
Public sector. Expenses of public sector is easy to measure and are more reliable than the public
Sector. Revenue minus cost of goods sold tell the exact picture of budgeting and it is successful
or not.
So budgeting is very main part of the every organization for stand up amount
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