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Management Accounting 2

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Budgeting is a continuous process in large organizations. Operation department create plans to help the company achieve its corporate goals. Overhead costs, capital expenditures, operating expenses and sales are forecasted for the upcoming fiscal year by the unit managers. The forecasted figures are then sent to the upper management for its approval. The upper management reviews all the projected costs, expenditures and revenues and then approves it.
The approved formal budget forms the guideline for operations in the coming year. Monthly and quarterly budget are also prepared by organizations to keep a track of performance against projected figures and takes corrective action if there is any deviation. Upper management has a bottom up approach in respect of budgeting. Corporate managers take the top down approach in meeting business goals. Managers who have a good understanding of profits and sales and have the capacity to overestimate costs typically create successful budgets (Singla, 2009, p. 147). There are various benefits of budgeting such as managers can compare the company’s performance against the projected figures which also forms the basis of their functioning within an organization. They compare the current performance of the company against projected figures and takes corrective action if there is any deviation. In this way, the managers are also able to keep their employees focused and guide them to performance (Lucey, 2003, p. 187).
Formal budgeting provides the company with a detailed and comprehensive picture of the immediate future and also informs the company about the possible opportunities and threats. Time is an important factor in the budgeting process. Managers sometimes find themselves completely lost in their effort to meet the rules and regulations that are there in the formal budget. But to have a sound system to exercise