Management Accounting: Rent Payments Essay

Question:

Discuss about the Management Accounting for Rent Payments.

Answer:

Budgets are essentially financial plans for the upcoming period that explains in detailed manner provisions for revenue. Apart from this, estimation of future sales, budgets contain different expected limits for different expenses namely payroll, rent payments, utilities, expenses for supplies, advertising expense, insurance payments as well as taxes (Otley and Emmanuel 2013). Therefore, a specific business budget essentially contains numerous subsidiary segments underneath two different broad groups namely income as well as expenses. There are three different columns showing figures for each and every subsection that reflects that the budgeted amount, actual amount along with variances in between the budgeted figure and the actual figure (Hope and Fraser 2013).

The process of budgeting can have a motivational influence by engaging diverse managers in the process of budgeting and by delivering incentives to all the managers striving for and achieving goals as well as objectives of the business (Kelly 2015). In addition to this, budgets also deliver valuable information for diverse superiors for evaluation of performance of managers and can be utilized for rewarding (Gallani et al. 2016). For instance, diverse budgets deliver different baseline financial information for specific incentive compensations. In addition to this, the budget strategy for the year can be utilized for awarding yearend bonus when definite goals can be achieved. Moreover, assessment of performance by means of budget analysis provides management specific information that is required for adjustment of overall production, inventory, different areas of management and management of inventory (Gallani et al. 2016). The assessment of performance also inspires managers to build superior channels of communication both inside the corporation and with suppliers as well as customers. Moreover, evaluation of performance by means of budget also helps management of business corporations to essentially the weigh the particular costs of different products as well as services against actual gains earned for specific products as well as services. Thus, this process of budgeting helps managers to carry out improved forecasting by putting their own predictions into definite as well as real forecasts (Baiocchi and Ganuza 2014). This helps in analysing the effectiveness of the managers in scanning the environment of the business and analyses their ability to meet the established targets. In addition to this budgeting process also motivates all the managers by delivering yardsticks that can be used for evaluation of performance (Baiocchi and Ganuza 2014).

According to the given case, the manager of a particular online clothing seller is of the view that the process of budgeting is a waste of time and it is more effectual to have more focus on improvement of business rather than spending time on detailed schedules of budgeting. The comment of the online clothing seller can be supported on certain ground. In particular, company needs to bear cost for carrying out the budgeting process. In certain cases, there are companies that spend a huge proportion of their earnings on the budgeting process and in this case budgeting can be considered a waste of time (Hope and Fraser 2013).

Again, there companies that have aggressive objectives of saving at particularly their levels of income. Therefore, in case of such companies as well the process of budgeting can be considered to be a waste of time. In addition to this, budgeting can be considered to be a waste of time for companies with management that naturally decide to spend or are very new to the process of dynamically working on finances (Hope and Fraser 2013). Moreover, budgeting need not be always highly detailed in nature depending on certain situations. Essentially, a budget does not need to be very detailed and always do not have the requirement to be broken down to fine levels. There are several Arguments in favour of the statement put forward by the online seller regarding budgeting process. There are reasons why the process of budgeting can be regarded to be waste of time by businesses. Essentially, there exists confusion regarding what a budget actually is. Businesses often fail to understand what a budget is and fail to understand whether it is a target or else a proper way of properly allocating resources. Thus, there remains obscurity as regards objectives of budgeting, accountabilities and understanding of the reality. Under this circumstances, budgeting process becomes a hotch-potch and a total waste of time. Moreover, properly balanced budgets also sometimes delivers wrong sense of regulation (Sandalgaard and Nikolaj Bukh 2014). Thus, this process of budgeting can be considered to be an illusion that is necessarily grounded on guesswork as well as political chicanery and can thus be regarded as a wastage of time.

Enumeration of progress as against the relative dimensions for example outcomes of the proceeding years can prove to be much more effective way of analysis of performance of a firm than budgeting. Again, annual budgets are becomes outdated before the beginning of the financial year. Thus, firms acquire very less value from carrying out comparisons with figures that are based on suppositions that are approximately 3 months old. Thus, under this circumstance as well, budgeting can be considered to be a wastage of time. Budgeting procedures also inspires unhelpful behaviour amongst teams of management, in which budget internally is defended internally rather than augmenting performance related to different other competition (Sandalgaard and Nikolaj Bukh 2014). In this case as well, the proposition that the “budgeting is a waste of time” can be supported. Besides this, processes of Budgeting are also said to tie up enormous management time as this time is spent on working on different assumptions that have essentially been under-mined by diverse events during prolonged process of budgeting. However, this effort could have been better employed in undertaking current and consistent forecasting as well as analysis of market (Hope and Fraser 2013). Submission of different budgets to be sanctioned or apportioned from essentially corporate centre inspires centralized decision-making that is distant from what actually happens in firms. Particularly, this process of communication indicates towards the fact that decision-making is sluggish and necessarily stops different managers from assuming accountability for their own actions. Thus, it can be hereby inferred that there are several reasons and circumstances under which budgeting process can be considered to be wastage of time.

References

Baiocchi, G. and Ganuza, E., 2014. Participatory budgeting as if emancipation mattered. Politics & Society, 42(1), pp.29-50.

Gallani, S., Krishnan, R., Marinich, E.J. and Shields, M.D., 2016. Budgeting, Psychological Contracts, and Budgetary Misreporting (No. 16-017). Harvard Business School.

Hope, J. and Fraser, R., 2013. the Budget. Budgetierung im Umbruch?, 1, p.71.

Hope, J. and Fraser, R., 2013. Beyond budgeting: how managers can break free from the annual performance trap. Harvard Business Press.

Kelly, J.M., 2015. Performance budgeting for state and local government. Me sharpe.

Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control. Springer.

Sandalgaard, N. and Nikolaj Bukh, P., 2014. Beyond Budgeting and change: a case study. Journal of Accounting & Organizational Change, 10(3), pp.409-423.

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