Accounting Assignment: Budgeting In Managerial Accounting

Question

Task: Organizations communicate and advance their vision and strategies through short-term and long-term budgets. Managers use budgets in their control systems to measure, monitor and motivate employees to achieve organizational goals.

You are required to prepare a 1000-words report on accounting assignment on budgeting in managerial accounting. In addition to your research findings, you should specifically answer the following questions through your submission.
Q1. How do budgets contribute to the strategic management process
Q2. What is a master budget and how is it prepared
Q3. What are flexible budgets and how can they be used for sensitivity analysis
Q4. What approaches exist for addressing the problems of traditional budgeting

Answer

Budgeting in managerial accounting
As evident in the current accounting assignment, budgets are important tools that organizations use to track their financial performance and make decisions about the allocation of resources. Organizations use budgets as part of their strategic planning process to ensure that their strategies are aligned with their financial goals. Budgets are typically developed by senior management and approved by the board of directors. They provide a framework for allocating resources and setting performance goals. Organizations use budgets to measure their progress towards their strategic objectives and make changes to their strategies as needed. Budgets are also used as a tool for monitoring and controlling operations. Organizations can use budget variances to identify areas where they need to make changes in order to stay on track with their financial goals. Budgets are a key component of an organizations strategic planning process. They provide a financial framework for allocating resources and setting performance goals. Organizations use budgets to measure their progress towards their strategic objectives and make changes to their strategies as needed. Budgets also play an important role in the organization's monitoring and control processes as they give managers insight into financial performance and enable them to make changes to improve it.

A master budget is a comprehensive financial plan for a business. It includes all of the expected income and expenses for a given period of time, typically a year. The master budget is used to track actual results against projected results, so that any necessary changes can be made.
The preparation of a master budget typically begins with the development of a sales forecast. This document estimates how much revenue the business can expect to generate over the coming year. Next, the company's costs are estimated. This includes both fixed and variable expenses, as well as depreciation and amortization. Once all of the relevant data is collected, it is used to create a cash flow statement, balance sheet, and an income statement.

These documents are then used as inputs to the master budget, which is a more comprehensive document that includes several years of information. The first step in developing this document is projecting cash inflow and outflow over the coming year. Next, balance sheet accounts and income statement accounts are reclassified to make it easier for analysis: current assets become long-term assets, current liabilities become long-term liabilities, etc. Finally, the budget is finalized and presented to management for approval.
The master budget can be used to make important financial decisions, such as whether or not to expand the business, purchase new equipment, or hire more employees. It also helps track actual results against projected results, allowing for necessary changes to be made when necessary.
The information that underlies a master budget is generally broken down by departmental budgets as well as budgets for each line item within each department. Cross-referencing is done to make sure these line items are not double-counted. Each department should include a breakdown of major activities that contribute to total costs, and each cost center or line item should have an appropriate identifier number to allow tracking over time.

A master budget can be prepared manually or with the aid of computers. Many companies use spreadsheets to prepare forecasts, but most large companies need software specifically designed for budgeting. Many medium-sized companies use commercial business management software or low-cost accounting packages for this purpose. It is important that the master budgeter selects a system that matches company needs and preferences.

A master budget is not binding, but it is used as a basis for evaluating and making business decisions. For instance, if a department's budget is unexpectedly exceeded, the manager will need to justify ongoing expenditures and/or cut back on costs. The master budget can help compare current expenses with forecasts and weigh various options for staying within an expected range of cost expenditures.

A master budget is sometimes called a rolling budget because it rolls forward projections month by month. This allows businesses to remain flexible and fine tune budgets as needed. For example, the projection for March will be virtually complete when February has ended, so there is no need to wait until April begins before beginning to prepare the next month's budget.

Master budgets can be prepared in a number of formats, such as tables and spreadsheets. A sample master budget spreadsheet is available at: http://www.exceltemplates.net/budget_sample_spreadsheet Budgeting is an essential practice in all organizations, large or small. There are many benefits to budgeting. It facilitates planning, control and decision-making within an organization. It also helps an organization function in a more efficient and effective manner.
Traditional budgeting is based on traditional management. It uses static planning and static goals, which do not take into account the dynamic nature of organizations. This approach does not work well in the 21st century because there are so many changes happening so quickly that companies must be able to respond quickly to succeed. The different approaches that replace traditional budgeting are as follows.One approach is zero-based budgeting, which starts from scratch for each new budget cycle. This means that every department and program must justify its existence and request funding based on its needs, rather than relying on the previous year's allocations.
Another approach is activity-based budgeting. This method focuses on the specific activities that a department or program engages in, rather than on its overall budget. This can help to identify areas where costs can be reduced or efficiency improved.
Finally, rolling forecasting is another approach that can help to address the problems of traditional budgeting. This method updates the forecast for future expenses and revenues on a regular basis, rather than waiting until the end of the fiscal year. This can help to ensure that the budget is more responsive to changes in the economy and in the organization's operations.

All of these approaches have their own advantages and disadvantages, and it is important to choose the one that will work best for your organization. Ultimately, the goal should be to find a budgeting method that is efficient, responsive to changes, and that helps to improve the organization's overall performance.

References:
Graybeal, P., Franklin, M., & Cooper, D. (n.d.). Describe How And Why Managers Use Budgets – Principles Of Accounting, Volume 2: Managerial Accounting. Describe How and Why Managers Use Budgets – Principles of Accounting, Volume 2: Managerial
Accounting. https://opentextbc.ca/principlesofaccountingv2openstax/chapter/describe-how-and-why-managers-use-budgets/.
Importance Of Financial Budgets In a Company's Strategic Planning. (n.d.). Importance of Financial Budgets in a Company's Strategic Planning. https://www.portebrown.com/news/importance-of-financial-budgets-in-a-companys-strategic-planning. Limits Of the Traditional Budgeting And New Approaches | SDG Group. (n.d.). SDG Group. https://www.sdggroup.com/en/insights-room/limits-traditional-budgeting-and-new-approaches.
Traditional Budgeting: What Are the Alternatives. (2021, December 9). Traditional Budgeting: What are the Alternatives | FP&A Trends. https://fpa-trends.com/article/traditional-budgeting-what-are-alternatives. Borad, S. B. (2020, August 12). What Is Flexible Budget - Example - Advanatges Of Flexible Budget. eFinanceManagement. https://efinancemanagement.com/budgeting/flexible-budget.

Graybeal, P., Franklin, M., & Cooper, D. (n.d.). Prepare Flexible Budgets – Principles Of Accounting, Volume 2: Managerial Accounting. Prepare Flexible Budgets – Principles of Accounting, Volume 2: Managerial Accounting. https://opentextbc.ca/principlesofaccountingv2openstax/chapter/prepare-flexible-budgets/. Baggott, A. (2019, November 22). Master Budget: What Is It And Why Is It Important - Holded. Holded. https://www.holded.com/blog/master-budget-what-is-it.

Borad, S. B. (2018, May 18). Master Budget | Meaning, Applications, Advantages And Disadvantages. eFinanceManagement. https://efinancemanagement.com/budgeting/master-budget#:~:text=The%20master%20budget%20is%20the,balance%20sheet%20of%20the%20organization..

Reference:
Gray Beal, P., Franklin, M., & Cooper, D. (n.d.). Describe How And Why Managers Use Budgets – Principles Of Accounting, Volume 2: Managerial Accounting. Describe How and Why Managers Use Budgets – Principles of Accounting, Volume 2: Managerial Accounting. https://opentextbc.ca/principlesofaccountingv2openstax/chapter/describe-how-and-why-managers-use-budgets/.

Importance Of Financial Budgets In a Company's Strategic Planning. (n.d.). Importance of Financial Budgets in a Company's Strategic Planning. https://www.portebrown.com/news/importance-of-financial-budgets-in-a-companys-strategic-planning.
Limits Of the Traditional Budgeting And New Approaches | SDG Group. (n.d.). SDG Group. https://www.sdggroup.com/en/insights-room/limits-traditional-budgeting-and-new-approaches.

Traditional Budgeting: What Are the Alternatives. (2021, December 9). Traditional Budgeting: What are the Alternatives | FP&A Trends. https://fpa-trends.com/article/traditional-budgeting-what-are-alternatives. Borad, S. B. (2020, August 12).

What Is Flexible Budget - Example - Advanatges Of Flexible Budget. eFinanceManagement. https://efinancemanagement.com/budgeting/flexible-budget.Accounting assignmentGraybeal, P., Franklin, M., & Cooper, D. (n.d.).

Prepare Flexible Budgets – Principles of Accounting, Volume 2: Managerial Accounting. https://opentextbc.ca/principlesofaccountingv2openstax/chapter/prepare-flexible-budgets/. Baggott, A. (2019, November 22).

Master Budget: What Is It And Why Is It Important - Holded. Holded. https://www.holded.com/blog/master-budget-what-is-it. Borad, S. B. (2018, May 18).

Master Budget | Meaning, Applications, Advantages And Disadvantages. eFinanceManagement. https://efinancemanagement.com/budgeting/master-budget#:~:text=The%20master%20budget%20is%20the,balance%20sheet%20of%20the%20organization.