The different types of tools and techniques of managerial accounting are of utmost importance to the organization management as it assists the management in taking the most appropriate and suitable decision with respect to the several key decisions of the company. There are numerous techniques of management accounting such as budgeting, standard costing, and activity-based costing that plays an important role in the success of the business of the company. The current assignment will basically discuss the budgeting which is considered as one of the most essential tools and techniques of management accounting. Budgeting is basically identified as the process which enables the business organizations to prepare detailed financial statements for a certain future period of time. The budgets generally include the business targets that are expected to be attained in the next financial year through appropriate strategy development like reduction in unnecessary expenses and cost so that the targets can be achieved with the available stock of resources. The budgets are prepared for a short, medium and long-term basis as per the needs and requirements of the companies.
The budgeting is identified as the microeconomic concept that mainly showcases the tradeoff made when a product is exchanged for another. The end result of this tradeoff, i.e. budgeting process is the development of a surplus budget in which future profits are anticipated or a balanced budget which displays that the incomes of the company are equal to its expenditure or a deficit budget in which revenues are less than the expenditure of the company. Thus, budgets prepared as a result of the budgeting process are considered to be an integral part of running and conducting a business effectively and efficiently (Magni, 2015). The budgeting process for the business operations will involve the activities like:
The budgeted balance sheet and the profit and loss statement are also referred to as the pro-forma financial statements and once they are prepared and approved, both of these statements are used for controlling the future activities of the company. The general time period for budgets is taken as one month, a quarter or an annual basis. The budget and the budgeting process should aim at developing a set of achievable and reasonable objectives for the firm with the help of assumptions and data that is generally based on the knowledge of future external and internal influences or events, or the historical outcomes and the management insight (Rubin, 2016). For example, the sale budget enables the company’s employees to know the future sales targets and the probable time the goals are expected to be achieved in the future.
In addition to this, the budgets are generally considered as the stepping stone towards the company’s success in financial forecasting as the budgets aim at reflecting the financial goals and targets of the business. The comparison of the forecasted results are made for each year, month and quarter for measuring the actual performance of the company while on the other hand, the budgeting process aims at reflecting the actual direction in the company should direct its efforts. Thus, financial forecasting for the three core financial statement of the company is achieved through budgeting process i.e. the income statement, the balance sheet and the cash flow statement (Lee Jr, et. al., 2012). It is also observed that the budget quality reduces when the budget is prepared for a longer time period, for example, five years or more because in such a long period there is a high amount of unpredictability which affects the relevance of budget in the present time.
Article 1: Traditional budgeting in today’s business environment
In the recent years, the traditional budgeting has been associated with several controversies that are arguing against and in favor of its use. The current literature for the research study helped in discussing the two-sided argument regarding the usage of traditional budgeting in the modern business world. The purpose of the research study is to provide a conceptual and theoretical knowledge with respect to the concept of traditional budgeting and the subsequent development of a modal framework in order to understand the utility of traditional budgeting in present modern business environment (Asogwa & Etim, 2017). A tripod relation between the managers, the budget and the households were developed and analyzed. The research study also aims at providing a suitable explanation with reference to the advantages of traditional budgeting along with an appropriate alternative budgeting approach in a dynamic business environment of the present time.
The study also showcases the effect of the organizational culture on the traditional budgeting process. In addition to this, it has also been observed that budgeting is considered as the major source for the enforcement of the control, accountability, and target of the organization which enables in the proper implementation and performance management. The control element is identified as one of the critical variables at potentially for the human efforts (Asogwa & Etim, 2017). Further, the traditional budgeting also leads to inculcate motivational spirit and the effective managerial direction among the workers of the company. Thus, it is advised that the traditional budgeting should be adopted by the business entities as well as individuals for gaining the required success in life.
Article 2: A collaborative approach to budgeting and the impact on the budgeting process: A Case Study
The major purpose of the given qualitative study was to conduct an exploration into the advantages of using a collaborative approach for the budget formation as the non-inclusive budget preparation can lead to alienation of the members of the operations team. The major goal of the corporations to prepare a budget is to plan and strategize for the target set in the planning process. The review of the related literature to the study showed that different methods of budget formation, demand input from the operational employees of the company that is generally not understood by the budget officers in the company (Van Roestel, 2016). The core problem that is addressed in this research study is to analyze whether adoption of a collaborative approach to a budgeting should be made for bringing an overall improvement in the implementation of the Generally Accepted Accounting Principles regarding reliability and relevance in the concerned budgeting process.
The given research study was guided by the conceptual framework of the participative leadership and helped in the formulation of research questions that focused on the inclusion of the operations. The in-depth analysis of the case study was done with the help of 20 professionals from the finance and operations department from the Metro Houston area. These professionals are having significant experience in the budget preparation over a period of time helped in the assessment of the paradigms regarding the advantages of the collaborative approach (Van Roestel, 2016). The questionnaires of the structured interviews involved the questions related to the budget experience, the relevant budget development, and the associated improvement and the greater involvement and participation in the budget preparation process. In order to analyze the data, pattern-matching was mainly used. The business insights of the operational employees were recognized as a strength but the budgeting process needed certain improvements.
In addition to this, the findings of this particular research study show that the business organization that focuses on enhancing collaboration in the budget preparation can have a much achievable and utilizing budget document. The budgeting data can be used for influencing the social change by improving the confidence of the investor, enhancing economic stability and the refined use of business resources through proper analysis of the financial variance.
Similarities in findings of the two research studies
The most essential similarity with reference to the two research studies is that both of them specifically relates to the topic of budgeting and how it helps business organizations to achieve the desired future targets of the company. Both the research articles also provide a proper explanation regarding the role of management and the employees in the success of the budget preparation process. Further, a three-tier relation between the budget, the organization management, and the household has been analyzed in the article 1 which is similar to the analysis of the budget preparation by the operations team within the company (Kelly and Rivenbark, 2014). The importance of organizational culture within the budget formation process has been adequately analyzed in both the research articles. Both the articles also show that how the different types of budget formation help in the performance management of the company as the different levels of the management are expected to perform the activities, their duties and responsibilities as specified in the budget plans.
Apart from this, both the research articles also show that budgeting is considered to be crucial for the controlling, targeting and accountability of the organization activities and operations. The budgeting process helps in generating necessary motivation within the organization and provides the necessary knowledge for the managerial decision making regarding the tasks and the objectives of the companies (Ganuza and Baiocchi, 2012). Thus, adoption of a collaborative approach by the management for the budget preparation is expected as this will enable the management to include the different entities and individuals like the operations team in the budget-making process.
Dissimilarities in the findings of the two research studies
There are a number of dissimilarities found between both the given researches based articles. One of the major dissimilarity is that the article 1 specifically relates to the traditional budgeting which is one of method of budgeting that is comparatively less used in the today’s modern business environment while the article 2 provides a general discussion over the budgeting process and the collaborative approach that should be adopted by the corporations for the purpose of budget preparation (Baiocchi and Ganuza, 2014). Thus an argumentative discussion has been carried out in the favor and against of the suitability of the traditional costing in the modern business environment. On the other hand, the article 2 mainly analyses the role of the operations management team in the process of budgeting and how effective collaboration of the different team members can make the task of budget formation an easier one.
In addition to this, the article one highly emphasizes over the importance of traditional budgeting in the managerial decision making and generation of motivation for taking the correct and the accurate decision on the basis of budgeting techniques. On the other hand, the second article mainly concentrates over the collaboration that is expected at the time of budget preparation as a more practical and utilizing budget can be obtained from the participation of the different members of budget preparing team (Roncalli, 2013). Further, the collaborated efforts are reflected when the organization attains its objectives and goals within the stipulated time period. Also, the first article discusses the organizational culture for the proper implementation of the budgets while the second article relates to the conceptual framework of participative leadership to promote the collaboration among the members of the Budget Committee.
Learning outcome achieved from the first article
The article one provides an in-depth and the comprehensive information with respect to the topic of traditional budgeting and what role does the traditional budgeting method play with respect to the current modern world of business. The first learning outcome that is achieved from the research study of the first article is traditional budgeting is required to exercise adequate control, to draft the operational guidelines and achieve the targets of the organization within limited resources as provided by the top management of the company. The traditional budgeting is considered as the panacea for the proper enforcement of the control mechanism. It has also been learned that budgeting is the necessity for the modern business environment as it enables the organization to properly coordinate, plan and promotes hard work and motivation among the staff of the organization.
Therefore, it is observed that budgeting is the key to the managerial success of an organization as it enables the management of the company to take the most suitable decision regarding the operations of the organizations. In other words, it can be concluded that the though traditional budgeting is relatively backward to suit the needs of the growing business organizations, yet it is recommended for any kind of business environment because with the help of this (Miller, 2018). The business organizations and corporations like Woolworths can effectively define their goals and objectives and they can remain focused and can pursue their related goals. Thus, the article exclusively explains that budgeting is helpful in establishing the organizational standards for the successive business transactions.
The second learning outcome achieved from this research study is that as the traditional budgeting method is losing its relevance and utilization for the modern business organizations there are a number of alternatives that can be used by the organization in order to achieve the set targets. These alternatives include options like the rolling forecast, the performance budgeting and the accrual budgeting (Ezzamel, et. al., 2012). These modern methods of budgeting are quite suitable for the contemporary organizations like AGL Energy Ltd. as these methods adequately meet the advanced needs of the organization. The rolling forecast can be observed as one of the best alternatives for the traditional budgeting as it prepares the budgets on a monthly, half yearly or quarterly basis which is quite practical in comparison to the traditional budgeting that prepares a budget for one whole year.
Learning outcome achieved from the second article
The second research study also provides multiple learning outcomes that can be observed from the recommendation and conclusions drawn from this research study. The first learning outcome achieved from this article is that the collaborative budgeting is considered to be significant elements of the budgeting process as under this, there are individuals that are directly or indirectly affected by the nature of the budgeting (Dudin, et. al., 2015). The collaboration in budgeting is quite fruitful to the external stakeholders like the investors along with the internal users of the financial information as it assists and guides in making the most suitable and appropriate decision for the future time period. The effective collaboration in the budgeting process is essential from the investor point of view as they are the ultimate actual owners in a publicly traded organization who expect a considerable return on their investment. In Case of large-scale organisations like Coles which is an Australian based supermarket store, a high level of collaboration in budgeting process is required as the there are voluminous activities and each department knows how the actions and activities of a particular needs to be regulated through proper participation of each department (Alviniussen and Jankensgard, 2015).
The second learning outcome achieved from this research article is that the budget preparation process has a direct impact with respect to the employee satisfaction at the workplace of the employees. The collaborative budgeting has a potential impact on the issue associated with social change. It is learned that the operational managers have greater job satisfaction when they are involved in the budget preparation process. A sense of teamwork is observed with the help of the collaborative approach, and there is greater coordination among the team members within the organization (Bruder and Roncalli, 2012). The collaboration budgeting will result in happier employees who enjoy their work and contribute their maximum efforts towards the goal achievement of the organization. The management accountant of organizations like AFT Pharmaceuticals Limited will be benefitted from the collaboration budgeting as the company would be able to promote better coordination and teamwork among its employees which will lead to the success of the organization.
Conclusion
From the given research articles, it can be concluded that the budgeting is considered to be of great importance for the success of the organization. This is because the organizations can track their organizational activities for the purpose of achieving the future goals and objectives. The first research article comprehensively explains the need and importance of traditional budgeting in the modern business world and what different alternatives are available to the organization in respect of the traditional budgeting process. The second article provides an explanation regarding the collaborative budgeting and how the management of the organization is benefitted from such budgeting. The real-life organizations examples have been taken to show the implications of the research studies.
References
Alviniussen, A. and Jankensgard, H., (2015). Enterprise risk budgeting: bringing risk management into the financial planning process.
Asogwa, I. E., & Etim, O. E. (2017). Traditional budgeting in today’s business environment. Journal of Applied Finance and Banking, 7(3), 111-120. Retrieved from https://search.proquest.com/docview/1898424070?accountid=30552
Baiocchi, G. and Ganuza, E., (2014). Participatory budgeting as if emancipation mattered. Politics & Society, 42(1), pp.29-50.
Bruder, B. and Roncalli, T., (2012). Managing risk exposures using the risk budgeting approach.
Dudin, M., Kucuri, G., Fedorova, I., Dzusova, S. and Namitulina, A., (2015). The innovative business model canvas in the system of effective budgeting.
Ezzamel, M., Robson, K. and Stapleton, P., (2012). The logics of budgeting: Theorization and practice variation in the educational field. Accounting, organizations and society, 37(5), pp.281-303.
Ganuza, E. and Baiocchi, G., (2012). The power of ambiguity: How participatory budgeting travels the globe. Journal of Public Deliberation, 8(2), p.8.
Kelly, J.M. and Rivenbark, W.C., (2014). Performance budgeting for state and local government. Routledge.
Lee Jr, R.D., Johnson, R.W. and Joyce, P.G., (2012). Public budgeting systems. Jones & Bartlett Publishers.
Magni, C., (2015). Aggregate Return On Investment for investments under uncertainty. International Journal of Production Economics, 165, p.29.
Miller, G., (2018). Performance based budgeting. Routledge.
Roncalli, T., (2013). Introduction to risk parity and budgeting. CRC Press.
Rubin, I.S., (2016). The politics of public budgeting: Getting and spending, borrowing and balancing. CQ Press.
Van Roestel, M. (2016). A collaborative approach to budgeting and the impact on the budgeting process: A case study (Order No. 10107192). Available from Business Premium Collection. (1791485066). Retrieved from https://search.proquest.com/docview/1791485066?accountid=30552
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