Understanding Budgeting Methods 6 Understanding Budgeting ✓ Solved

Effective budgeting is critical to the success of business organizations as far as the efficient use of financial resources is concerned. A wide range of marketing approaches is available. However, the choice of budgeting depends mostly on the internal needs of the business. Even though line-item budgeting methods is preferred due to its simplicity and ease of usage, there are other alternative approaches which are critical in the reduction of expenses among other benefits.

For instance, the management of Wema Self-Organization has over the years relied on the line-item budgeting as the primary method for the accounting activities. Therefore, the purpose of this persuasive essay paper is to explore different aspects of alternative accounting.

Line-Item Budgeting

In this type of budgeting, the proposed expenses by cost center are clustered to conduct accounting activities. In this approach, the business organization can identify which cost center or departments within the organization have the highest spending rates. It also shows the spending or budgets from the previous fiscal period to draw a comparison. In this regard, it allows the accounting team to get a preview of the deviation of the current budget from the previous one, thus permitting evaluation of approaches through implementing cost-cutting measures to save the business entity from fund misappropriation.

The cost-saving strategies include utilization of the previous budget estimates in the current accounting period to evade possible wastage of financial resources.

Zero-Based Budgeting (ZBB)

Zero-Based Budgeting (ZBB) applies the opposite approach from traditional accounting practices as far as budgeting in business organizations is concerned. In this method, the manager of the Wema Self-Organization builds a budget from scratch with no baseline. The technique helps the organization in analyzing its immediate needs and assessment of costs. In other traditional budgeting methods, the previous period acts as the starting point (baseline) while in ZBB, the benchmark is at zero.

ZBB requires the inputs of all managers of the business company in justifying budgeted expenses. Thus, Wema Self-Organization can benefit significantly by adopting ZBB compared to line-item budgeting.

Benefits of Alternative Methods

Some of the benefits of ZBB include increased levels of flexibility in the budget as compared to line-item budgeting. Additionally, the approach is associated with cost-saving features that allow the organization to prevent unnecessary wastage of resources. Since the operations in the accounting process tend to be more focused, it is possible for the organization to remarkably lower their costs.

Cost Changes in Implementing New Method

The implementation of ZBB requires the allocation of more financial resources to conduct reviews. However, such analyses are carried out annually, thus further reducing costs as compared to line-item budgeting. The application process may also require investment in proper documentation; the ZBB system forces managers to be accountable in the usage of the organization’s financial resources.

ZBB and Accounting Agency

Many accounting agencies and business organizations are rapidly realizing the benefits associated with the ZBB system in comparison to traditional accounting methods. For instance, Deloitte Accounting Agency leverages the advantages of ZBB to provide practical and creative accounting solutions to their clients.

Some of the significant benefits the business enjoys from such methods include a reduction in wasteful spending, improved accountability, and increased flexibility.

Persuasive Analysis

Zero-Based Budgeting is far better than line-item budgeting in numerous ways. For instance, unlike the latter, ZBB provides greater latitude to the management when preparing current budgeting estimates as the previous accounting year is zero. Secondly, ZBB encourages higher levels of accountability on the part of the managers of the Wema Self-Organization. The top management is responsible for the spending of the company's financial resources and must prove every expenditure within the organization. Finally, ZBB is critical for business organizations intending to implement cost containment, especially in situations where organizations are undergoing significant economic crisis and making a turnaround.

Conclusion

Therefore, it is imperative to note that ZBB has numerous advantages that make it one of the best accounting methods. It helps business organizations in cutting costs and improving transparency in the spending of the organization’s limited financial resources. Efficient budgeting allows businesses to track and manage their resources effectively.

References

  • Bielefeld, B., & Schneider, R. (2014). Budgeting. Basel: Birkhäuser.

  • Hilton, W. R. (2005). Managerial Accounting: Creating Value in a Dynamic Business Environment. New York: McGraw-Hill.

  • Penning, A. (2012). Budgeting. New York: Osborne.

  • Banks, A. (2008). Budgeting. McGraw-Hill PAVE.

  • Guide, C. T. (2014). Six Basic Strategies. Retrieved from Team Member Guide.

  • Edmondson, R. (2017). 7 Non-Negotiable Values for Teams I Lead. Retrieved from Team Leadership.

  • University, C. T. (2018). MGMT655 Team Charter / Company Baldwin. Retrieved from Management Capstone (MGMTB-01).

  • Wisconsin. (n.d.). Team Member Expectations. Retrieved from Minds: Wisconsin.edu.