Importance of Budgeting in Management Accounting Report

This report, prepared for the ACC2005 Management Accounting unit, focuses on the crucial role of budgeting within organizations. It begins by establishing the definition of a budget and its significance in controlling cash flow, planning, and identifying financial objectives. The report then explores the importance of budgeting for both small and multinational firms, highlighting the political aspects that influence budget reform and accountability. It outlines key steps in budget preparation, including updating assumptions, cost ascertainment, revenue forecasting, and obtaining departmental budgets. Furthermore, the report differentiates between top-down and bottom-up budgeting approaches, providing a comprehensive overview of the budgeting process. The report concludes by emphasizing budgeting as a technical and political process, crucial for financial management.

Management
Accounting
Part 2 (b)

 The present presentation is based on the evaluation of
the importance of budget and its elements. The
presentation also describes about the steps that are
required to be taken while preparing budget.
Introduction

 This process is started by the determination of financial
objective of company, and on the basis of this budget
will build (Blanchard, 2015).
 It is refers as a guideline, which can be used by
company for observation of its profit stream and can
ascertain probable risk associated with its earning
generating capacity
Budget Definition

 For keeping the record of income and expenditure
budgeting process is applied by the organizations.
 For any business entity, budget process plays a very
important role (McDONALD, 2016). It is an important
technique with respect to put control in manner of
spending by business.
Importance of budget

 Budgeting is the best way for controlling small
business cash flow, and allows to make better
investment in new opportunities at the most suitable
time (Shaw, 2016). Further, the projected cash flow,
small firm’s cash budget projects their future cash
performance on timely basis, further pinpointing any
difficulties coming the way.
Budgets for small firms

The budgeting process and the last outcome of the budget
includes two core aspects of multinational administration
namely planning and organizing. For multinational firm,
budget is significant for planning at corporate as well as
subsidiary levels (Wolf and Floyd, 2017). Thus, it is integral
that all subsidiaries analyze future opportunities, benefits and
risks in a realistic way. It also helps in representing a real time
projection of the future.
Budgets for multinational
firms

 The budget is stated as a political process. Further, the
political governance highly impacts the operations of
financial management systems and budget reform.
Thus, it essential to power up local budget
accountability, while strengthening demand for change
are core elements of successful budget and reform.
Political aspects of budget

 Update assumption of Budget
 Adequate Funds
 Ascertainment of cost
 Ascertain packages of budget
 Ascertainment of Revenue Forecast
 Obtain budget of departments
 Authenticate Reimbursement
 Authenticate Bonus Plans of Company
 Obtain the request of capital budget
 Modification in the budget model
 Review the budget
 Obtain permission
 Issue the budget
Steps to be considered while
budget preparation

 There are two types of approaches:
 Top-down budget: A top-down approach is engaged with the senior management team
designing and preparing a high-level budget for the organization as a whole. When creation
of top-level numbers done, then these are allotted to individual departments, creating a
comprehensive budget thereof (Johnsen, 2015).
 Bottom-up budget: lower level management of the company prepare the budget, as per the
guidelines provided by the top executives of the company.
Approaches of issuing the
budget

 Thus, it can be concluded that, management thinks
that budgeting as a technical process as it requires
planning, monitoring, and analysis of the financial
objectives. In the political process, the budgeting
process is very importance, as the financial
management system significantly influenced by this.
Conclusion

 Blanchard, L.A., 2015. PART and performance budgeting
effectiveness. In Performance Management and Budgeting(pp. 81-
105). Routledge.
 Johnsen, Å., 2015. Strategic management thinking and practice in the
public sector: A strategic planning for all seasons?. Financial
Accountability & Management, 31(3), pp.243-268.
 McDONALD, M.A.L.C.O.L.M., 2016. Strategic marketing planning:
theory and practice. In The marketing book (pp. 108-142).Routledge.
 Shaw, T., 2016.Performance budgeting practices and
procedures. OECD Journal on Budgeting, 15(3), pp.65-136.
 Wolf, C. and Floyd, S.W., 2017. Strategic planning research: Toward a
theory-driven agenda. Journal of Management, 43(6), pp.1754-1788.
References

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