Managerial Accounting Report: Budgeting Analysis for Intellect Systems

This report provides a comprehensive analysis of budgeting within the context of managerial accounting, focusing on its application to Intellect Systems, a manufacturing company. The report begins with an explanation of budgeting, its processes, and its importance for financial control and strategic decision-making. It then delves into the purposes of two selected journal articles, 'Accounting, Auditing and Accountability Journal' and 'Journal of Management Accounting Research,' exploring how budgeting facilitates the work of accountants and auditors, promotes efficiency, and aids in resource allocation. The report highlights similarities and differences between the studies, including the shift from cash-based to output-based budgeting, and discusses specific outcomes beneficial for Australian accountants. It covers the role of budgeting in managing monetary resources, analyzing profitable segments, and facilitating accurate financial planning. The report emphasizes budgeting's function in evaluating financial statements, identifying risks, and improving organizational performance by optimizing resource utilization and controlling expenses.

Managerial Accounting

Table of Contents
INTRODUCTION..............................................................................................................................1
MAIN BODY.................................................................................................................................... 1
A. Explanation of budgeting...................................................................................................... 1
B. Explanation of purpose of both the selected journal articles................................................3
C. Similarities and differences in two studies............................................................................6
D. Specific outcome from above studies...................................................................................8
CONCLUSION................................................................................................................................. 8
REFERENCES...................................................................................................................................1

INTRODUCTION
Managerial accounting is a form of cost accounting in which different information is
identified, measured and analysed by the managers to form strategies to achieve
predetermined organisational goals. It help internal stakeholders to get exact data of how a
company is performing its operational activities. Managers of an organisation can use this
information to make strategic decision that may help to deal with possible problems that may
occur (Demerjian and et. al., 2012). Main objective of this report is to find that how budgeting
can help accountants to make accounting process effective. Organisation chosen for this report
is Intellect Systems, it is a manufacturing company of electronic equipment products and
currently running its business in West Perth, Australia. Topic chosen for this report is budgeting.
Journals that are selected are Accounting, Auditing and accountability Journal and Journal of
Management Accounting Research.
This project report consist detailed explanation of budgeting and purpose of selected
two journal articles, similarities and differences in both the selected articles. Four different
outcomes for the studies which will be useful for Australian accountants are also discussed
under this project report.
MAIN BODY
A. Explanation of budgeting
Budgeting: Budgeting is the process of managing budgets in which different budgets of
an organisation are managed by the owners, managers and accountants. It includes the plan of
spending budgets. Management of a company estimates incomes and expenditures for a
particular time period. It is mainly based on past data and current market trends. Information
of different budgets is provided to the internal stakeholders of a business enterprise. In Intellect
Systems budgeting is done to manage monetary resources that are involved in activities of
different operations and departments of the organisation (Hilton and Platt, 2013). It help the
mangers to control and monitor budgets of different departments to run the operations
smoothly. Budgeting is very important for every kind of organisation because it help
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accountants and managers to analyse profitable and non profitable segments of products. It
will i9ncrease productivity and profitability for the company.
A skilled accountant can help to set appropriate budgets for every activity which is going
to be performed in coming year or currently running. A detailed budget include information of
different incomes and expenses that may occur. Main objective of formulating budget is to
assign monetary resources to the operational activities. In Intellect Systems accountants
manage budgets according to the requirement of product segments. Budgeting facilitate
accountants by providing them detailed information of funds that are spent by the
organisation. It also leads the managers to formulate accurate budgets for each task of
company (Jones and et. al., 2012). It is technique which is used by accountants and managers of
different organisation to analyse that how funds are controlled and organised in different
departments of the company.
Budgeting is a replacement of cash based accounting which is replaced because it is an
easy way of estimating possible expenditures and uncertainty. Budgets of a company are
disclosed to the internal stakeholders because they help in decision making and policy
formulation and they have right to gather the insider information of the organisation.
Accountants of a company are responsible to evaluate financial statements and check that
informations are recorded accurately. Auditors are liable to assure that there is no
misstatement of any kind of transaction in financial statements. It also help auditors to evaluate
actual position of the company as budgets carry all the information of monetary resources that
are going to spent on different operations.
In management accounting budgeting is also considered as an important tool to control
the budgets and evaluate possible future risks. Three different planning tools are used in
management accounting to estimate and forecast budgets. These tools are forecasting,
contingency and scenario. It help the managers to evaluate favourable and unfavourable events
that may take place in future and managers have to reserve funds to deal with the same. These
tools help them to be aware of such kind of events and generate budgets according to the
estimation. In Intellect Systems managers use different planning tools in budgeting and
budgetary control, which direct them to identify negative or positive types of events that may
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affect their ability of performing activities. Management of the organisation is concerned with
budgeting process and formulation of budgets (Kaplan, 2011).
Process of budgeting include different steps. First of all the managers have to gather
information of different sources of incomes and expenditures, which can be collected from
financial statements. Than managers have to record all the identified sources of incomes and
create the list of expenses which can be monthly or yearly based. Next step is to divide expense
in different categories according to their nature like fixed or variable expenditures. Now the
managers adjust expenses from incomes and and it expenses are very high than they have to
take a look on variable expenses and find out that where it can be reduced. Last step is to
review and main budget to gain more and more profits for future period (Kravet, 2014).
Budgeting also help in accountability because with the help of budgets the observer of
financial statements can get the information of how the company is using its funds in effective
manner. It can also help the analyser to examine the performance level of an organisation. In
accounting there is a major role of budgeting because it is a process of creating a plan of
spending the monetary resources of a company. It also help to evaluate that the company is
having enough funds to run the operations. There are different types of budgets that are
prepared by organisations to maintain the activities for example cash budget to maintain cash
activities, operating budgets to analyse operating activities, Financial budget to run financial
activities smoothly, Master budget which can reflect the actual picture of financial activities of
an organisation. These budgets are prepared by different organisation in order to manager their
operational activities to maximise their profits and minimise the possibility of errors an financial
crisis.
B. Explanation of purpose of both the selected journal articles
Purpose of accounting, auditing and accountability journal: Main purpose of this article
is to analyse that how budgeting can facilitate the work of an accountant and an auditor.
Budgeting help the accountant to analyse that where and why the organisation is utilising
resources. In pas decades output based budgeting has been shifted and it has replaced the cash
based budgeting as it is more advantageous for the organisations. It can also help to evaluate
non financial performance of an organisation. Accountants of Intellect Systems use budgeting
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to promote greater efficiency, accountability and transparency. Public sector companies in
Australia has adopted accrual basis accounting first and than private sector companies has
followed them. It has not provided the estimated level of success hence the government has
implemented some changes in budgeting in Australia in year 2000 (Accounting, Auditing and
Accountability Journals, 2018).
Another purpose of this article is to evaluate the impact of budgeting in private and
public sector companies. It has helped the accountants to analyse actual and accurate
performance and position of the company which is based on output based budgeting. When
the organisation have adopted the concept of output based budgeting in the place of cash
based budgeting, it has resulted in the meaningful performance modifications. Increased
performance based data is required to analyse proper improvements. Accountants of
organisations have responded this data in a circular process of on going modifications. In
Intellect Systems, budgeting is required to make better decisions about resource allocation
according to the requirement of product segments. Budgeting helps the accountants to
evaluate extremely financially centred information which is described in budgets (Weygandt,
Kimmel and Kieso, 2015).
Other purposes of this journal article is to determine the use and benefits of budgeting
for a company like Intellect Systems. In year 2001 Australian government was very concerned
about the decreasing profits of public sector companies and than it has been observed that
companies have introduces output based budgeting to reduce losses. In earlier years there is
not a large impact of budgeting but it has resulted positively in long term and benefited
companies. It helped the accountants to identify the weaknesses in recording system and make
modifications in the same to remove inefficiencies. It has resulted in enhanced performance of
the organisations.
There are different uses on budgeting in an organisation but the main use, is to plan
future which is based on past data and current trends. Budgets are based on past year's
information which help the owner of a business to estimate future expenses and record all the
activities that may take place in future. Accountants and auditors in Intellect Systems analyse
budgets to pass their judgement on how company is working and what is the performance level
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of the running business. Budgets are the summary of the expenses and incomes that a company
is earning (Needles, Powers and Crosson, 2013).
The concept of budgeting is helping the accountants of Intellect Systems to fulfil needs
and achieve goals of the organisation. As main function of budgeting is to control and monitor
budgets of a company, so it help to monitor budgets before spending money to any activity or
expenses. It helps to achieve the goal of increased profitability and productivity because it helps
to assign budgets to the departments according to the need and requirements. Budgeting is a
tool that can lead the organisation toward success by reducing its extra expenses and other
waste. The higher level of performance can be achieved with the help of budgeting by optimum
utilisation and control of monetary resources.
There are two different questions that may be asked from the accountants and auditors
of Intellect Systems. First question is that, how budgeting help to achieve organisational goals?
And another question is that, do budgeting is compulsory for the companies?
Purpose of Journal for management accounting research: The main purpose of this
report is to analyse the use of budgeting in management accounting. Another purpose is to
determine the benefits of budgeting process for an organisation.
Budgeting is technique which is used by organisations to determine funds available in
the organisation, and form plans to spend these funds to perform different activities. From last
few decades the companies in Australia are dealing with different types of problems like
financial problems, low profits, increased expenses. Organisation was facing these problems
because of traditional budgeting technique and to resolve all the issues the organisation has
adopted output based budgeting (Journals of Management Accounting Research, 2018). This
adoption has benefited the organisations and helped them to overcome the problems. The
modern budgeting concept has enhanced the performance level of organisations and also
increased their profitability by providing them ways to control unnecessary expenses.
Australian Government has also declared that the organisations who are using traditional
budgeting method have to implement output based budgeting method within their
organisation.
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Management accounting is system in which managers formulate different types of
reports to record insider information which is provided to the internal stakeholders. In these
reports the main report is budget report that reflects all the resources that are involved in
various operational activities of an organisation. For organisation it is not compulsory to
formulate these reports but reports are generated to analyse that how organisations are
performing and what will be the outcome of such activities. Budgeting is implemented by the
organisations to resolve their different types of issues like sudden expenses and increased
losses by maintaining monetary resources in an effective manner.
In Intellect Systems, managers follow the concept of budgeting to examine how
company is using the resources. Budgeting also help to identify the difficulties in the funds
utilisation system (Ward, 2012). Budgets are used to forecast incomes and expenditures for a
specific time period. The process of budgeting help the organisation to determine that how
monetary resources the company is making and spending. Budgets are very important for a
company to plan and forecast possible events. Organisations conduct budgeting to determine
cost effective and efficient strategies that may help to maximise profits. It help the
organisations to make economic judgement as well as strategic decision making. It direct
managers to make long term and short term plan that aids to implement policies even if it is
costly and time consuming. Budgeting increase level of consciousness of costs and skilfulness of
activities performed to achieve predetermined goals and motives. The main function of
budgeting is to plan and control. Planning includes the formulation of plans to spend money
and controlling process includes to reduce excess expenses (Noreen, Brewer and Garrison,
2014).
Budgeting process consist many budgets that are classified according to the
requirement of different departments of an organisation. These budgets are formed by
managers to evaluate that how to utilise available monetary resources in effective manner.
Some of the budgets are concerned with investments and forecasting of productivity and
performance of an organisation. It also help to measure the success of a business. Profits of an
organisations are managed by the owner or managers by adopting appropriate budgeting
technique that may provide information of available resources and the required areas where
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the budgets can be utilised. In management accounting managers use planning tools to
estimate possible events that may take place and affect the operations. These tools are used by
the company to prevent these types of uncertainties by estimating the same. It will result in
increased profitability and performance level. Setting short term and long term objectives,
specific programs and than managers express the same in budgets.
Budgets are mainly used to forecast financial statements that express managerial plans
and include all the steps of operational activities. The main base of budget is cash budget in
which all the cash receipts and payments are recorded by the managers of an organisation
(Saadi Halbouni and Kamal Hassan, 2012).
There are two different questions that may be asked to the managers of an
organisation. First question is that, do budgeting facilitate the management accounting
process? Another question is that, how budgeting can lead managers in forecasting?
C. Similarities and differences in two studies
Similarities:
Basis Accounting, Auditing and
Accountability
Management accounting
Recording Accounting, auditing and
accountability are three different
function in which accounting
informations are recorded,
analysed, observed, determined and
formulated in different books by
different persons like, accountants
and auditors.
In management accounting different
accounting information is recorded in
various management accounting
reports for example costs for
products are recorded in cost
accounting reports, analysed
performance of business and
individuals are recorded in
performance reports and outstanding
amount of clients are recorded in
account receivable reports.
Purpose Purpose of accounting is to record Purpose of management accounting
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accurate information of business in
books, purpose of auditing is to
analyse transparency of recorded
information and check relevancy of
information, accountability is the
process of observing the
information which is recoded in the
books.
g is to record relevant and accurate
information in the books and than
control, analyse, observe and check
the recorded information to examine
the performance of the company.
Differences:
Basis Accounting, Auditing and
Accountability
Management accounting
Use of budgeting In accounting, auditing and
accountability budgeting is used to
evaluate actual performance of a
company and to analyse that how
effectively organisation is using it
resources that are available.
In management accounting
budgeting is used to forecast possible
future events whether they are
favourable or unfavourable. It also
help the managers to make strategic
decision to deal with different
problems like unplanned and
unnecessary expenses.
Compulsory Accounting, auditing and
accountability is very important and
compulsory for the organisations as
it help the external stakeholders like
government, suppliers and
customers to analyse position and
financial strength of the company.
Management accounting is not
compulsory for the organisations
because it is done for internal
stakeholders to determine that how
strategies and policies that are
implemented by managers are
responding to the goals like
maximisation of profits and
minimisation of losses and risks.
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D. Specific outcome from above studies
Outcomes from accounting, auditing and accountability journal:
Effective reporting: Effective reporting can be done with the help of budgeting in which
all the accurate incomes and expenses that are involved in activities of organisation can be
recorded and help accountant to easily analyse the same (Songini, Gnan and Malmi, 2013).
Increased performance: Budgeting can help an organisation to increase the level of
current performance by proper maintenance of every transaction. Budgeting is a process in
which all the future incomes and expenses are estimated so that managers can plan for the
same in advance to enhance organisational performance.
Outcomes from Journal for management accounting research :
Prediction of future events: Accountants can predict future expense with the help of
budgeting, because it help to get the information of possible future events that may occur and
also help to reserve resources for the events.
Planning tools: Different planning tools like scenario, forecasting and contingency can
help accountants to respond financial crisis that may take place effectively and plan the ways in
which company can deal with such issues to increase profits and reduce risks (Wall and Greiling,
2011).
CONCLUSION
Managerial accounting is the process of analysing, controlling, monitoring and recording
accounting information in reports so that internal stakeholders of an organisation can get the
information of how operations are performed by the company. Budgeting is a technique which
is used in managerial accounting to forecast possible future expenses and incomes. It also
forecast favourable and unfavourable events that may take place in future and affect
operational activities negatively. Accountants of an organisation is suggested to follow the
concept of budgeting to make the reporting system effective, predict future events, enhance
performance level.
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REFERENCES
Books and Journals:
Online
Accounting, Auditing and Accountability Journals. 2018. [Online]. Available through:
https://search.proquest.com/business/docview/217543938/EE55C0E09EA8420APQ/
13?accountid=30552>.
Journals of Management Accounting Research. 2018. [Online]. Available through:
<https://search.proquest.com/business/docview/211515450/C5E6EF6CFC0D49E4PQ/
>5?accountid=30552>