Budgeting and Zero-Based Budgeting in Management Accounting

This report provides a comprehensive overview of budgeting within the context of management accounting. It begins by defining budgets and outlining their core purpose, which includes forecasting income and expenditure, and their role in decision-making and performance monitoring. The report then explores the benefits of budgeting, such as improved financial control, focused financial goals, and awareness of financial proceedings. It also discusses the concept of budget centers and the implementation of zero-based budgeting, including its rationale, advantages, and disadvantages. The report recommends the implementation of zero-based budgeting in organizations with flexible operational budgets. Ultimately, the report concludes by summarizing the key aspects of budgeting, emphasizing its importance in forecasting and monitoring business performance, and highlights the benefits and drawbacks of zero-based budgeting.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of Student:
Name of University:
Author’s Note:

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Table of Contents
Introduction......................................................................................................................................2
Budget..............................................................................................................................................2
Purpose of a budget.........................................................................................................................2
Benefits of budgeting.......................................................................................................................2
Budget period...................................................................................................................................3
Budget centres.................................................................................................................................3
Zero based Budgeting......................................................................................................................3
Rationale for implementing Zero based Budgeting.........................................................................3
Advantages and disadvantages of Zero based Budgeting................................................................4
Recommendation.............................................................................................................................4
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

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Introduction
The study has discussed on Purpose of a budget and the various aspects of benefits of
budgeting. Some of the other aspects have been further discerned with Budget centres. The
report has further given an augmented focus on Zero based Budgeting and the rationale for the
implementation of the same.
Budget
Budget is defined as the estimation of cost, revenues, reflecting the future financial goals
and conditions over a specific time span. The administrative planning of budget is based on the
planning for the quantified objectives, standardising of performance measures and coping with
the foreseeable adverse situation (Heinle, Ross and Saouma 2014).
Purpose of a budget
The main purpose of the budgeting has been discerned with forecasting of income and
expenditure thereby assessment of profit. Budget also acts as an important tool for decision
making and means for monitoring of business performance.
Benefits of budgeting
Some of the main forms of the benefits of budgeting has been identified with, giving
control over the money, keeping focused on the money goals, making aware of the various
proceedings of money. Some of the other benefits have been further discerned in form of the
assisting with spending and savings. It also acts as a forecasting tool and enable in saving of the
various types of the unexpected costs (Sandalgaard and Nikolaj Bukh 2014).

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Budget period
Various organisations are seen to segregate the funding periods into several periods
known as budget period. The budget period is discerned as the time for authorization of the funds
awarded and matching of the cost sharing requirement along with notice of grant award.
Budget centres
Budget centre is identified as a service organisation which is established to provide best
information for making financial decisions and advance with the strategies and programs. These
are further seen to provide comprehensive and streamlined approach to department, school and
university for increasing the budgets, forecasts and ensure the stakeholders for efficient use of
the resources (Palmer 2014).
Zero based Budgeting
Zero based budgeting is considered as the main method in which the budgeting expenses
needs to be justified for each new period. Zero based budgeting needs to start form zero base and
every function is seen to work within the organization as per the analysis of the needs and the
costs. These types of the budget are then seen to be built for the upcoming period, regardless of
increasing or decreasing value than the previous one (Bleyen, Lombaert and Bouckaert 2015).
Rationale for implementing Zero based Budgeting
I would consider implantation of zero based budgeting as this is not seen to be based on
the consideration historical data and considers each budget as a fresh period. This type of the
budget is also suggested for the systematic method of planning as opposed to simply basing of
the decisions on the previous year’s allocation. This form of the budgeting is further seen to be

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based on the application of the various types of the methods which has been seen to be
conducive with nature of the decision of the packages varying with the companies.
Advantages and disadvantages of Zero based Budgeting
The main advantages of the zero based budgeting has been seen with the flexible budgets
focused with the operations, lower cost implementation and a more disciplined form of execution
process. This is identified to use the managerial tool for effective control of the cost.
However, some of the main drawbacks have been discerned with difference with
traditional budgeting and every year this needs to be prepared from the scratch. This type of the
budget does not properly examine the legacy costs and economic shock based on the extreme
actions taken by the companies. It has been further seen to force the managers to think about
every dollar spent in the business, in every financial year (Glass, Stefanova and Prinzivalli
2014).
Recommendation
The main form of the recommendation has been seen with only that organisation in which
flexible budgets are focused with the operations. Some of the main form of the recommendation
in favour of the implementation of the zero based budgeting has been further seen with tailoring
of the discussions input the cost constraints and assists in offsetting of the cost which are as a
result of implantation of the new program developments. However, this form of the budgeting
process is not recommended for the resource intensive concerns and focusing on long term
investment plans such as worker training and research and development.

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Conclusion
The report has been able to suggest that the main purpose of the budgeting is forecasting
of income and expenditure and monitoring of business performance. The benefits of budgeting
has been identified with, giving control over the money, keeping focused on the money goals,
making aware of the various proceedings of money. The main advantages of the zero based
budgeting has been seen with the flexible budgets focused with the operations, lower cost
implementation and a more disciplined form of execution process. However, every year this
needs to be prepared from the scratch and it does not properly examine the legacy costs and
economic shock based on the extreme actions taken by the companies.

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References
Bleyen, P., Lombaert, S. and Bouckaert, G. (2015) ‘Measurement, incorporation and use of
performance information in the budget a methodological survey approach to map performance
budgeting practices in local government’, Society and Economy, 37(3), pp. 331–355. doi:
10.1556/204.2015.37.3.2.
Glass, V., Stefanova, S. and Prinzivalli, J. (2014) ‘Zero-based budgeting: Does it make sense for
universal service reform?’, Government Information Quarterly, 31, pp. 84–89. doi:
10.1016/j.giq.2013.05.022.
Heinle, M. S., Ross, N. and Saouma, R. E. (2014) ‘A theory of participative budgeting’,
Accounting Review, 89(3), pp. 1025–1050. doi: 10.2308/accr-50686.
Palmer, J. C. (2014) ‘Budgeting Approaches in Community Colleges’, New Directions for
Community Colleges, 2014(168), pp. 29–40. doi: 10.1002/cc.20118.
Sandalgaard, N. and Nikolaj Bukh, P. (2014) ‘Beyond Budgeting and change: a case study’,
Journal of Accounting & Organizational Change, 10(3), pp. 409–423. doi: 10.1108/JAOC-05-
2012-0032.