Managerial Accounting is a foundation of a business which assess the costs which is incurred by the businesses in different activities of a business and the same is useful in the decision-making process of the business. The focus of managerial accounting is to assess the information which is related to costs of the business which is used by the business for making appropriate decisions in a business. There are various techniques which are used in managerial accounting out of which the common techniques which are used by the business are standard costing, budgeting and activity-based costing. The report will be providing insights on budgeting practices which are undertaken by the business for recording cost and revenue generating sources and also analyze the use for budgeting practice in a business.
The assessment will be considering two different journal articles which are on different business considering on the application of budgeting practices in the country. Moreover, the assessment will also be identifying the similarities and difference which exist between the two papers. Lastly, the assessment will be outlining four outcomes which can be adopted by Australian entities in order to make their business efficient in nature.
Introduction to Budgeting Practices
Budgeting may be defined as a process of creating budgets or plans which are used by the management of the company in decision-making process of the business. Budgeting practices in a business allows the management to forecast the revenue and expenses of the business during the year. Budgets are used by the business for various purposes as the same can also be used by the management of the company as a means of controlling and monitoring the activities of the business. In other words, Budgeting can be defined as a plan which is created by the management of a company for the purpose of establishing whether the amount of money spent by the business are productive in nature and also for keeping a track record of the expenses of the business and also the revenue which is generated by the business. Budgeting allows a business to understand the expenses incurred and estimate whether the expenses which is incurred are productive in nature or not. As per Atkinson et al. (2011), Budgets are used by most of the businesses as a crucial management accounting practice which is used both in public and private sector organizations. The overall popularity of budgeting practice is mainly due to wide range of applicability of budgets for diverse purposes which includes decision making process, planning, resource allocation, monitoring and control and even used as a means of communication between business organizations. In addition to this, there are different types of budgets and the management of the company requires to formulate the budgeting style which is suited to the conditions of the organization.
Nowadays most of the businesses prefer to use budgeting tools in computerized environment for the purpose of improving the efficiency of the budgeting process. Businesses nowadays use tools like ERP system, integrated packaged accounting which can be used for the purpose of reporting and also forecasting the revenues and expenses which will be incurred by the business. Moreover, budgeting is also used as a tool in combination with standard costing wherein budgeted costs are set by the management which the departments needs to follow as a guideline for incurring expenses of the business. The technique is also used for making comparison between actual results and the budgeted result which are set by the management of the company during the year. In case of any variance, the same is investigated as to the nature and cause of such variance in the budgets of the business. Thus, it can be said that the technique is used as a control and monitoring tool in order to ensure that the activities which are carried out by the businesses are in a planned manner or not.
The objectives of Budgets which can be identified in relation to a business are listed below in details:
Evaluation of Scope and Research Areas in Budgeting
This section considers journal research papers which are on budgeting practices which have been incorporated in different business and the usefulness of such practices in a business. The journal articles which are considered by the management of the company for are based on budgeting practices which are followed by the business and the same is given below:
Article 1: “Public Sector Accounting, Accountability And Austerity: More Than Balancing The Books?”
Article 2: “’Newcastle City Council And The Grassroots: Accountability And Budgeting Under Austerity”
The assessment will be evaluating the journal articles and also evaluating the significant areas of the journal article which is related to budgeting practices in a business.
Analysis of Article 1
As per the journal which is considered in the assessment, public sector enterprises face strict challenges in era of austerity. The paper further states that in the era of developments and significant market changes, budgeting techniques will also be subjected to introduction of innovative styles of budgeting in the business. The public-sector enterprises of a business in a business environment faces challenges in the new business environment and therefore the same needs to focus on reporting and accounting policies in a business.
The journal portrays an era between 1970s and 1980s when the global economy was facing crisis situation where in there was a decline in austerity and management policies of the business, emphasis were put on accounting and auditing requirements in a business. The most affected organization in such global financial crisis were the public-sector organization in UK and therefore there was a need for the government to bring about regulations which can counter such a situation in business environment. The accounting regulations which are brought in suggest that businesses need to conduct proper accounting of financial information for the funds which are available with public sector organization. The global financial crisis which most of the business organization faced can be counter by austerity programs which is suggested by the government. The research paper shows the emphasis of the government on reduction of public finances which are undertaken by public sector business for surviving and adapting to the changing environment. The author further states that such business can use tools like budgeting, standard costing for keeping the expenses which are incurred by such businesses in check. The paper specifies that the government of UK was the first to understanding the impacts of excessive public spending and thereby initiated austerity programs which was spearheaded by budgeting practices which are undertaken by business. Budgeting practices in such businesses which have difficulties in keeping a track record of spending of the business is a lifesaver as it helps businesses to keep proper track record of the expenditures of the business and ensure that the standards which are set by the management are effectively followed in the organization. Budgeting techniques ensures that there is accountability of the expenses undertaken by the business. The journal article suggests austerity programs to be implemented by different businesses in order to reduce the overall expenses which are incurred by businesses and budgeting forms one of the techniques which is suggested in the austerity programs. On the basis of the Journal, the questions which can be raised are listed below:
Analysis of Article 2
The journal article focuses on accountability relationship between Newcastle City Council and the citizen of the city. The researcher further wants to shows how the different forms and uses in a business can improve the accountability requirements of the city and also help in various other aspects such as resource allocation, setting standards, sources of funding options which is available to the management of the business. The journal article focuses of austerity requirements in a business and how the same can handle situations which are related to accountability in a business organization. The researcher also emphasizes on the several budgeting styles which are used by businesses in order to make the reporting and management framework of the business accountable to the stakeholders and general public. In UK the role of accountability and budgeting in central and local government relationships as shown in the research paper has been explored by many researchers. The findings of such researches are always in favour of increasing importance of accountability and budgeting in a business organization.
The role of budgeting in meeting the accountability requirements in Newcastle City Council is effectively shown in the research paper which suggest that the party is dedicated towards reducing the expenses of the council and at the same time meet the expectations of the citizens of the city. The cuts in expenditure are justified by the council with the use of a budget which is prepared to forecast the expenditures which is needed to be incurred. The budget also specifies areas from where expenses can be cut down so that there is a savings for the council. The journal article recognizes the importance of budgets in creating strong relation of accountability between the government and the grassroots. The use of different form of budgeting techniques helps the management to bring about effective accountability practices in public sector organization and the resident of the city. Moreover, due to the various functions which are performed by budgets like forecasting, planning, communicating and also monitoring, budgeting is prerequisite for good governance practice in an organization. The research shows how budgeting can be used by the management for formulation of strategies and also for managing the resources which are present at the disposal of the government.
The analysis of the journal article raises some questions which are listed below:
As per the analysis of the two journal articles some similarities and differences can be noticed between the discussions and findings of the two research papers
Similarities
Dissimilarities
Conclusion
The discussion which is shown above effectively shows the role of budgeting in a business and how the same can be used by the management of a business for the purpose of accountability and also measuring performance of the business. The article which are considered for this assessment discusses the role of budgets in cutting down the expenses of the business and the same can be used by governmental bodies for lowering the expenses of the business. The assessment clearly shows that budgets form a vital management accounting tool which every business nowadays require for managing the business.
References
“JITBM”. 2018. Jitbm.Com. Accessed September 10 2018. https://www.jitbm.com/JITBM%2017%20VOLUME.html.
Bourmistrov, Anatoli, and Katarina Kaarbøe. “From comfort to stretch zones: A field study of two multinational companies applying “beyond budgeting” ideas.” Management Accounting Research 24, no. 3 (2013): 196-211.
Cardo?, Ildikó Réka. “NEW TRENDS IN BUDGETING-A LITERATURE REVIEW.” SEA: Practical Application of Science 2, no. 2 (2014).
Ekanem, Ekpenyong E. “Zero-based budgeting as a management tool for effective university budget implementation in University of Calabar, Nigeria.” European Journal of Business and Social Sciences 2, no. 11 (2014): 11-19.
Enrico Bracci and others, ‘Public Sector Accounting, Accountability And Austerity: More Than Balancing The Books?’ (2015) 28 Accounting, Auditing & Accountability Journal.
Ferry, Laurence, and Peter Eckersley. “Budgeting and governing for deficit reduction in the UK public sector: act three ‘accountability and audit arrangements’.” Public Money & Management 35, no. 3 (2015): 203-210.
Henttu-Aho, Tiina. “Enabling characteristics of new budgeting practice and the role of controller.” Qualitative Research in Accounting & Management 13, no. 1 (2016): 31-56.
Hilton, Ronald W., and David E. Platt. Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education, 2013.
Ilott, Terry. Budgets and Markets: A Study of the Budgeting of European Films. Routledge, 2013.
Kaarbøe, Katarina, Paul N. Gooderham, and Hanne NËrreklit, eds. Managing in dynamic business environments: Between control and autonomy. Edward Elgar Publishing, 2013.
Lidia, T?nase Gabriela. “Difficulties of the budgeting process and factors leading to the decision to implement this management tool.” Procedia Economics and Finance 15 (2014): 466-473.
Rogulenko, Tatiana, Svetlana Ponomareva, Anna Bodiaco, Valentina Mironenko, and Vladimir Zelenov. “Budgeting-Based Organization of Internal Control.” International Journal of Environmental and Science Education 11, no. 11 (2016): 4104-4117.
Rubin, Irene S. Public Budgeting: policy, process and politics. Routledge, 2015.
Saidu, Sani Kabiru, and Buhari Musa. “Budgeting Participation, Goal Com mitment and Accounting Performance of Nigerian Listed Banks.”
Thomas Ahrens and Laurence Ferry, ‘Newcastle City Council And The Grassroots: Accountability And Budgeting Under Austerity’ (2015) 28 Accounting, Auditing & Accountability Journal.
Warue, Beatrice Njeru, and Thuo Viviam Wanjira. “Assessing budgeting process in small and medium enterprises in Nairobi’s central business district: A case of hospitality industry.” International journal of information technology and business management 17, no. 1 (2013): 1-11.
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