Management Accounting Report: Budgeting and Balance Scorecard Analysis

This report provides a comprehensive overview of management accounting, focusing on the balance scorecard and various budgeting techniques. It begins by introducing management accounting and its role in aiding managerial decision-making. The main body then delves into the balance scorecard, explaining its strategic planning and management system, its four perspectives (financial, customer, internal business, and growth), and its benefits and limitations. The report also discusses different budgeting approaches, including budgetary slack, feedback mechanisms, zero-based budgeting, and incremental budgeting. Each budgeting method is defined, and its applications are explained. The report concludes by summarizing the key concepts and emphasizing the importance of these tools in financial management and organizational performance. The content is based on various sources, including academic journals and publications, and aims to provide a clear understanding of the concepts.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................2
1. Explaining balance scorecard with diagram...........................................................................2
2. Analysing the benefits and limitations of Balance Score Card Approach..............................3
3. In the context of budgeting, definitions and applications are as following: ..........................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................6

INTRODUCTION
Management accounting is concerned with the presentation of professional knowledge and
abilities to reveal accounting information which may help to the management in policy
formulation, planning and control for the undertakings (Boučková, M., 2015). The present study
is based on balance scorecard and different management accounting tools like budgetary slack,
feedback, Zero-based budgeting and incremental budgeting. The Balance scorecard is a system
which defines strategic planning useful in successful alignment of the business activities to the
vision and strategy of the organisation by monitoring the organisation performance against the
strategic goals and objectives. It has also explained the four different aspects used for measuring
an organisation health viz. Learning & Growth, Internal business processes, Financial and
Customer. Further it has describes the purposes, benefits and limitations of the balanced
scorecard (Boučková, M., 2015).
MAIN BODY

1. Explaining balance scorecard with diagram.
The Balance scorecard is a strategic planning and management system used to align business
activities to the vision and strategy of the organisation by monitoring performance against
strategic goals. This model helps in viewing the organisation from 4 perspectives that are
financial, customer, internal business and growth. A metrics is developed, data are collected and
analysed in relation to these perspectives (Muda, I. and et.al., 2018).
It focuses on shareholder, customer, internal and learning requirements of a business in order to
create a system of linked objectives, measures, targets and initiatives which collectively describe
the strategy of an organisation and how that strategy can be achieved. It identifies, clarifies,
aligns and provides meaning about the vision and strategy. By clarifying it fosters
communication about the strategy and finally assists in alignment of department and employee
goals & actions with strategy (Busco, C. and Quattrone, P., 2015). It enables the firm in linking
the strategy with long term as well as short term goals and budgets. Performance is reviewed at
all the levels for purpose of learning and improving strategy.
(Source: Balance scorecard, 2017)

Financial Perspectives- under this the financial aspects are viewed and measured like operating
income of the company, economic value, return on assets and capital employed return. It is very
important for every entity to know the performance and position in relation to its operations,
investments and capital so that decisions regarding the allocation of funds and further investment
in other business ventures can be taken and the goals can be achieved effectively and efficiently
(Busco, C. and Quattrone, P., 2015).
Customer perspective- In this the measures like satisfaction and retention of the customers is
analysed. The market share of the firm in target market is also measured under this perception of
balance scorecard. By reviewing the taste and preferences of the customers the entity can achieve
its strategy of making customer specification product and could reach a large customer base with
a huge market capture that leads to higher profits.
Internal business- The internal business includes the cost, output and quality for the processes of
the business like production process, procurement process and fulfilment of orders. It is one of
the basic perspective of the organisation as it measures the functioning and processes of the
operations that helps in comparing the actual performance with the budgeted performance so that
production target can be achieved as per the set strategies (Busco, C. and Quattrone, P., 2015).
Growth perspectives- Satisfaction, retention and skills of the employees are measured under this
perspective of balance scorecard. It enables the firm in knowing the performance of its
employees that they are working as per the task assigned and fulfilling the strategies or not and if
there exist any gap then necessary measures can be taken to fill the gap so that goals are achieved
with efficiency. The employees are rewarded for performing beyond the target so that they
remain motivated and work with satisfaction and high morale.
2. Analysing the benefits and limitations of Balance Score Card Approach.
Balance scorecard is a management system which focuses on measuring the performance level of
an organisation and its improvement by providing internal as well as external business processes
feedback and also helps in identifying & clarifying the vision and business strategy. It focuses on
4 different aspects for measuring an organisation health viz. Learning & Growth, Internal
business processes, Financial and Customer (Muda, I. and et.al., 2018).
Benefits of Balance scorecard Approach:
1. Better Strategic Planning - It is a system which emphasises on financial problems and its
effective solution by making good business strategies thereby seeking competitive advantage in
long run as well.

2. Indicates Company Performance - Balance scorecard helps in monitoring the performance of
employees as well as organisation and develops better business strategies for improving the
quality. It also helps in creating a plan of action, for better implementation of business strategy &
increasing the profit margins of the company. Balance scorecard can be helpful in tracking the
success & progress level of the company in terms of finances (Muda, I. and et.al., 2018).
3. Better Performance Report - It helps in monitoring different perspective of business operations
such as return on capital employed, operating income, percentage of market share acquire in
different targeted areas, customer & employee satisfaction and their retention, cost of production
involved, growth level achieved by the organisation.
4. Communication of Improved Strategy - Business strategies are developed for the betterment of
business operations & effective achievement of organisational goal and objectives. Strategies are
made and translated into action by keeping in mind the business objectives and vision. Proper
and effective communication of such strategies is important for both internal and external
business management and its stakeholders to make important decision (Muda, I. and et.al.,
2018).
Limitations of Balance scorecard Approach:
1. Emphasises on organisational performance - Balance scorecard is a system which takes into
consideration the improvement of organizational performance and growth level. It focuses on
enhancement of organisational growth and performance improvement from the point of view of
four perspectives only. It recommends nothing about measures to be taken for improving the
quality of performance in area of these perspectives (Muda, I. and et.al., 2018).
2. Expensive and Time Consuming Process - Applying balance scorecard approach, it is one of
the most expensive and time consuming process for every business organisation. This is because
of the fact for applying such approach correctly, it is very important to have a thorough
understanding of how to implement the process in a better effective ways for smooth functioning
of the organisation work. Person with lack of the sufficient knowledge, will lead to hiring of an
expert to whom cost has to be paid. The better understanding of using balance scorecard
approach is as important as the need of understanding the process of balancing the scores is
important. Thus, it is not simple process and hence require trainings.
3. Poor support from Employees - As this process is expensive and time consuming process,
many employees in the organisation doesn't like welcoming such approach. The main reason
behind such poor support or resistance from employees is that, for using balance scorecard

requires learning and understanding as well as it needs time and training (Muda, I. and et.al.,
2018).
3. In the context of budgeting, definitions and applications are as following:
Budgeting is a process of making projection or estimation about future expenses & includes
preparation of budgets, business plans & strategies for meeting future cash and other resource
requirements of business operations (de Campos, C.M.P. and Rodrigues, L.L., 2016).
1. Budgetary Slack - Budgetary slack is defines as a process of creating a budget which is
contains either the under-estimation of projected revenue or income amount or making over-
estimation of budgeted expenses amount for a definite period of time.
Applications of the budgetary slack in the company accounts can be done in the following ways:
1. By either underestimating the incomes or revenues of the business organisation. This will
result in understating the profits of the business organisation, and thus business will reflect a
negative financial position;
2. The second way of doing budgetary slack is to overstate or make over estimation about
the expenditures side of the business organisation. This will also result in reduced profits or
low revenue generation thus results in lowering the business profitability (de Campos,
C.M.P. and Rodrigues, L.L., 2016).
3. Budgetary slack can be built or implemented in the business project, for favourable
review by the investors and management executives of the business organisation in case
when revenues are more and/or expenses incurred are less than the expected or estimated
one.
2. Feedback - Feedback is a valuable information that can be used to make important changes in
business strategies, plans and business decisions. Effective feedback either positive and negative
is a very helpful tool for every organisation in mapping & improving its performance & thereby
increasing profits. By using feedback properly, the organisation can improve the quality,
performance level of its business operations.
Application of Feedback:
1. Single loop feedback helps in making the correction to recent or existing business
activities in order to 'get back on course'.
2. Double loop feedback helps in making amendments in the original plans for more a
ccurately showing the reality of existing business.

3. Zero based budgeting - A budgeting approach in which the budget is prepared by setting it to
zero or starting from scratch by re-evaluating or re - assessing the business activities of the
organisation. It ensures proper & efficient resource allocation thereby minimizing resource
wastage and identifying out dated business operations (Oraka, A.O. and et. al., 2016). It helps in
minimizing and mitigating unnecessary expenditure of the organisation. It emphasises on
detecting inflated budget as well and helps management in ensuring effective fund expenditure to
core business activities.
Application of Zero based budgeting:
1. A Zero based budgeting helps in making emphasis on the budget leaders to
identify and evaluate the needs and requirements of making budget for next period
(Oraka, A.O. and et. al., 2016) and the amount of cost to be incurred on fulfilment of
such needs, thereby reducing cost of production and increasing profits as well as
operational efficiency of the business.
4. Incremental budgeting - The Incremental budgeting approach is a process in which budget is
prepared by using the actual performance or by considering budget of previous time period as a
basis for making new budget for the period by adding some incremental amount. This approach
is simple & easy to prepare as current period financial results is taken as basis for preparing
incremental budget & can perform on continuity of funds in the future. It also helps in reducing
the conflict among the departments of the organisation related to fund allocation (Niemeyer, C.
and et.al., 2018).
Application of Incremental budgeting -
1. It helps the business organisation in preparing the new budget on basis of previous
budget by considering factors such as demand and supply forces of market, sales
estimated, production capacity etc.
2. It helps in the wiseful and correct allocation of the funds and resource expenses
to the business units which are mostly is in the need of such allocation.

CONCLUSION
From the above report it can be concluded that management accounting is a term which can be
defined as the tools and techniques of providing accounting and other managerial information
and reports timely so as to perform the management related business activities like planning,
organising, controlling, coordinating, evaluating and helps in managerial decision making.
Furthermore, the report has explained the concept of Balance scorecard. Balance scorecard is a
strategic planning method emphasizing on different aspects of the business organisation. It also
focuses on improving the employee as well as organisation performance, customer experience
and feedback. It has also explained the four different aspects used for measuring an organisation
health viz. Learning & Growth, Internal business processes, Financial and Customer. The
benefits and limitation of using balance scorecard has also been defined. At last the report has
discussed about different budgeting approaches and their application in the business organisation
for better achievement of the organisation goals and objectives.

REFERENCES
Books and Journals
Boučková, M., 2015. Management accounting and agency theory. Procedia Economics and
Finance. 25. pp.5-13.
Busco, C. and Quattrone, P., 2015. Exploring how the balanced scorecard engages and unfolds:
articulating the visual power of accounting inscriptions. Contemporary Accounting
Research. 32(3). pp.1236-1262.
Cokins, G., 2016. The Top Seven Trends in Management Accounting. EDPACS. 53(4). pp.1-7.
de Campos, C.M.P. and Rodrigues, L.L., 2016. Budgeting Techniques: Incremental Based,
Performance Based, Activity Based, Zero Based, and Priority Based. Global Encyclopedia of
Public Administration, Public Policy, and Governance, pp.1-10.
Krishnan, R., 2015. Management accountant—What ails thee?. Journal of Management
Accounting Research. 27(1). pp.177-191.
Muda, I. and et.al., 2018, January. Performance Measurement Analysis of Palm Cooperative
Cooperation with Using Balanced Scorecard. In IOP Conference Series: Materials Science
and Engineering (Vol. 288, No. 1, p. 012081). IOP Publishing.
Niemeyer, C. and et.al., 2018. The Impact of Dynamic Feedback and Personal Budgets on
Arousal and Funding Behaviour in Participatory Budgeting. Group Decision and
Negotiation. 27(4) pp.611-636.
Oraka, A.O. and et. al., 2016. Zero-based budgeting: Pathway to sustainable budget
implementation in Nigeria.
Online
Balance scorecard. 2019. [Online]. Available through:
<https://www.balancedscorecard.org/BSC-Basics/About-the-Balanced-Scorecard>.
Fontinelle. A., 2017. Budgeting. [Online]. Available through:
<https://www.investopedia.com/university/budgeting/>.
Management Accounting. 2018. [Online]. Available through:
<https://www.cpacanada.ca/en/become-a-cpa/cpa-prep-becoming-a-cpa/introductory-
management-accounting-cpa-preparatory-courses>.