Need back in 15 hours from now

Understanding Budgeting Methods

Vibert Jacob

South University

Understanding Budgeting Methods

Introduction

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 critical in the reduction of expenses among other benefits (Hilton, 2005). For instance, the management of Wema Self-Organization has over the years relied on the line-item budgeting as the primary methods for the accounting activities. Therefore, the purpose of this persuasive essay paper is to explore different aspects of alternative accounting as discussed below;

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 has the highest spending rates. It also shows the spending or budgets from the previous fiscal period to draw a comparison (Bielefeld & Schneider, 2014). In this regard, it allows the accounting team to get a preview in the deviation of the current budget from the previous one, thus, permitting evaluation of approaches through for implementing cost-cutting measures to save the business entity from fund misappropriation (Bielefeld & Schneider, 2014). 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) apply the opposite approach from the traditional accounting practices as far as budgeting in business organizations are 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 the starting points (baseline) while in ZBB the benchmark is at zero. ZBB requires the inputs of all managers of the business company in justifying budgeted expenses (Penning, 2012). Thus, Wema Self-Organization can benefit significantly by adopting ZBB as compared to the line-item budgeting as discussed below;

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 which 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 (Hilton, 2005).

Cost Changes in Implementing New Method

The implementation of ZBB requires allocation of more financial resources to conduct reviews. However, such analyses are carried out annually thus, further reducing costs as compared to the line-item budgeting (Bielefeld & Schneider, 2014). The application process may also require investment in proper documentation process; the ZBB systems 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 the ZBB to provide practical and creative accounting solutions to their clients (Bielefeld & Schneider, 2014). Some of the significant benefits the business enjoy from such methods include a reduction in wasteful spending, improved accountability as well as increased flexibility.

Persuasive Analysis

Zero-Based Budgeting is far much better than the 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 (Bielefeld & Schneider, 2014). 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 financial resources. They have to prove every money spend within an organization. Finally, the approach is critical for business organization intending to implement cost containment including situations where such organizations are undergoing a significant economic crisis, and the company is in its efforts of making a turnaround. Financial restructuring requires proper spending of financial resources (Bielefeld & Schneider, 2014). Therefore, such benefits are crucial in saving the organization thousands of dollars through cutbacks and reduction in wastage by way of increased accountability on the parts of managers.

Conclusion

Therefore, it is imperative to note that ZBB has numerous advantages that make one of the best accounting methods. It helps business organizations in cutting costs, improving transparency in the spending of the organization meager 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.