Content
Theoretical base of
accounting and management accounting of budgeting
a) Accounting as a system of
production control.
b) Inner and outer systems of
accounting.
c) Main questions of
accounting control on the enterprise management.
d) Main questions of management
control on the enterprise.
e) Principles and logic of
accounting building.
Budget development and
budgeting of the enterprise.
a) Budgets and budget
process.
b) System of management with
the help of budgeting on the enterprise.
c) Advantages of budgeting.
Practical methods of
accounting optimization in the process of budgeting on the example of “German
Technical Cooperation GTC” enterprise.
a) About GTC organization:
tasks and goals.
b) Key moments of finance
politics of GTC.
c) Accounting building in GTC
organization.
d) Budget development and
process of planning.
Conclusion.
Budget control on the
enterprise is the base for its functioning. By means of accounting we make
management and control of business processes and operations, running on the
enterprise. Often from the quality of information, received from the accounting
system, from its fullness and reliability, depends possibilities of income
order, taking right decisions of control, choosing of clients, suppliers,
finding partners of business development and many others.
Wide circle of
faces use finance and quantity information of accounting. Consequently, only
accounting is the base for taking management decisions, as inside of
organization, so as outside of it. Accounting provides necessary information
for realization of three basic functions: planning, control and appraisal.
1.
Planning –the process of development of action order. Planning includes goal
set and also find the ways of the best alternative.
2.
Control – following process of plans implementation. In other words, to
determine how actions correspond with plans.
3.Appraisal
–process of study of the whole system of decisions making. All that have goal
to better it, on this stage it is important to understand whether the set goal
was achieved, if not then find out what caused next reasons: lack of planning
or control, or the goal was itself wrong.
Together with
main functions, accounting on the enterprise, function of back connection and
analytical function are also made.
Function of back connection
is very important, as without it is impossible the function of management
system. System accounting provides workers of management with real data about
activity of the enterprise and its division for definite period. On the base of
this information, managers and administrators make control over plan indicator,
standards, norms and balance realisation, and follow economic use of all kinds
of resources and also define different shortages, bring out reserves of
production and level of its usage. System of accounting provides management of
back connection of any level.
Realization of
similar function allows making analysis in all sections of accounting,
including effective use of resources distribution of all expenditures on
production and selling of goods. And also correct use of prices that plays
great role in the conditions of market prices or inflation processes.
When we analyze
finance information of the enterprise, special role play computer techniques
and different sorts of calculation machines. Modern computer technique allows
to control all quick input of current data to the system of accounting, and
comparing these data of standards, norms, plans and estimates. Specially worked
out computer programs allow effectively, put actual data into groups and make
their systematic analysis to bring out deviations.
System of
accounting, relying on the above said, is more important when controlling
informational system of any organization. System of accounting plays main role,
when we control flow of economic data and their direction to all subdivisions
of firm, and also interested people out the firm. Accounting –is a finance
which controls informational system, gives users full picture of economic
activity on the enterprise and create apparatus of control.
Inner
and outer systems of accounting.
When building effective
system of accounting, necessary to mark out two spheres of the enterprise
activity: inner and outer.
Outer system
of accounting includes such factors as active legislation, written norms and
rules of accounting control, process of finance information to provide it to
public ( such as accounting
balance, reports on
income, losses and money means). Outer system of accounting of enterprise
activity reflects finance relationship of enterprise and its surrounding.
Inner system
of accounting –determines how effective work is in that organization. In
general state the structure of enterprise can include existing business
processes and operations on the enterprise, resources used in the process of
work and so on. On the base of inner accounting, we make analysis and transmit
information to management personnel (administrators), necessary for enterprise
of management decisions. It is necessary to note that information of inner accounting
is not often given away by organization.
Traditionally
inner and outer systems of accounting on the enterprise are made separately.
Accounting (finance) is called to reflect common finance information and aimed
to satisfy public and society interests of economy information at organization.
Data of finance control of accounting don’t make any commercial secret as they
reflect general indicator of the company activity.
The aim of
management accounting is to give information to narrow circle of users,
directly to members of that organization, i.e. managers, owners, administrators
of departments with the aim to allow enterprise to use this information, and
take reasonable and made in time management decisions. Data of management
accounting is a commercial secret and not used for publication, i.e. almost
unapproachable to society.
In spite of
the different goals, at present time, the first is tendency of inner and
outer integration of accounting with common system. Harmonization of inner and
outer systems of accounting happens mainly on the reason of bigger orientation
on international rules of accounting control, strengthening of markets goods
and services globalization and also enterprise activity, formed for reasons of
economy effect.
Merging of
inner and outer systems of accounting includes maximum identity of reports’
periods, of price indicators and goal means. As outer system of accounting
legally normalized, then in most cases, we face difficulty in adaptation of
inner systems of accounting with outer one. Full harmonization of accountings
on the enterprise can be achieved, if we form common bank of data, made by
transition from usual double circle system (finance and management accounting
make two separate exclusive circles of accounting) to one circle system, where
one single accounting and one bank of data exist, used for different goals
differently.
Main advantage
of inner and outer harmonization of accounting system is single explanation of
finance results indicators as inside of the enterprise so as outside of it.
Information from common bank of data can give more understandable and real
appraisal to economy cost of enterprise. More over on the expense of
unification of accounting system, some processes on collection and information
processing can become excess and increase effectiveness.
Harmonization
of accounting systems mainly seen in the west practice and closely connected
with the development and implementation of current technologies into
enterprise. specification of produced goods and services play special role in
merging of accounts. In local practice, we often use traditional way in
accounting control of the enterprise, i.e. goes division on outer and inner
systems (accounting and management accounting).
Goals
and tasks of accounting on the enterprise.
Accounting is
an orderly made system of collection, registration and information
generalization, and using solid, stable and documented calculation of all
economic operations, special economic subjects (organization, enterprise) are expressed
in money terms. The objects of accounting include mainly property of
organizations, their responsibilities and economic operations, made by
organizations in the process of their activity.
The process of
collecting information of economic activity of organization is contained in
determination, classification, appraisal and measure of economic operations.
And also other important economic events reflected in the accounting system.
By
registration we understand orderly build and consecutively reflected economic
operations and other economically important events in first documents and
accounting registers.
Generalization
of information is the analysis itself, preparation and interpretation of
information. In the process of information analysis we can determine
information development, provided to users, circle of users, interconnection of
different indicators of organization activity, dependence of indicators from
economically important events and situations. Information about accounting is
provided to users as reports with tables, graphics and in text format.
Coming from
determination of accounting, principles of accounting control on the enterprise
are next:
·
Solid
reflection of finance and economic activity of enterprise, i.e. reflection of
all volume of enterprise property, all kinds of production reserves, main
funds, expenditures on production and sell of products, and realization of
money means, debts as to enterprise so as to other organizations (enterprises);
·
Regularity
during reflection of the present economic factors. It is supposed that we make
constant watch and reflect economic operations, connected with flow of main
funds, production reserves, money means, securities, calculations, credits;
·
Legalization
of any economic fact in documents, i.e. using legally concerned, first paper
documents or machine documents. It is necessary, according to legalized
document, set responsibility to economic operation;
·
Reflection
of all economic processes in money terms;
·
Presence
of interconnection between finance and economic activity limited by mutually
dependent facts under process.
The goal of accounting –is presence of full and true information, about finance
state of organization made in time with the help of reports for wide circle of
faces, who make decisions on different goals, spheres and organization
activity. The main task of accounting is registration and processing of
economic data such way so that they become useful information for inner and
outer indirect users.
Under inner and
outer users of finance information we understand users with direct finance
interest, i.e. managers of organization, owners and administrators and also
investors and creditors. As an indirect user we understand group of users, who
show indirect interest to finance information of organization, i.e. this can be
representatives of tax services, finance consultants and so on. Table 1. shows
who the main is, of the accounting information about economic activity of
enterprise.
Table
1. Classification of users of accounting information.
To first group,
as seen from the table1, we relate owners, co-owners, board of directors, high
management personal, managers, heads and other users, some of them should know
real finance situation of the enterprise for effective solving of further
problems and make new plans for future. Successfully working managers often
make decisions on the base of accounting data or their analysis. That’s why
administration is one of the main user of accounting information.
To second group
we relate users with direct finance interest, i.e. investors and creditors.
Investors of finance reports of general purpose make themselves conclusions
about finance perspectives of the enterprise in future, and also about whether
it worth to invest money to enterprise. Creditors make conclusion about
creditability of the enterprise, i.e. whether this enterprise has money to pay
out interests and make debt return on given credits.
To third group we relate indirect users or
with indirect finance interest, this group includes tax organs, finance
consultants, state institutions, publicity, other organization and interested
faces. With the help of accounting reports, they can satisfy different needs in
information, which allows them appreciate, for example, ability of organization
to pay out dividends.
As it’s seen in the table, every group of
users has its own interests. Appointment of accounting report is to create
maximum possible level to smooth contradictions between interests of different
users and develop common effective activity of enterprise.
Accounting information is necessary for
planning, control and appraisal of organization activity and its structure of
subdivisions. On the base of accounting data, we make accounting system, analytical
function and back connection. Consequently organization’s attention in future
will be devoted to development of accounting, as the success of organization
fully depends on accounting .
Tasks and goals of
management accounting of enterprise.
Management
accounting is a subsystem of accounting. The main feature, connecting these two
kinds of accounting, is information used for taking decision. Data of finance
accounting help outer users take substantial decisions for oraganisations
(f.ex. should invest company). Data of management accounting used by inner
users of finance information to decide wide circle of problems of management.
It can be said
that finance and management accounting is in one informational field and their
interconnection can be different (picture 2).
Picture
2. Interconnection of management and finance accounting.
Connection between
management and finance accounting can be next:
·
Management
and finance accounting is fully depend on each other, this is seldom met in modern
practice (variant 1).
·
Part
of the data in management and finance accounting coincide, although these are
different systems (variant 2).
·
Management
and finance accounting is a complex system, including finance accounting
(variant 3).
Though
principle of management effectiveness predetermined the necessity to mark it
from the accounting system. Gradually on the enterprises two accounting are
formed: management and finance, every with own goals, tasks and functions.
Management
accounting is a collection, interpretation and analysis of finance information
about organization activity for exact needs of management (production
improvements, decrease of expenditures and so on).
The main goal of
management accounting is to provide heads and specialists of organization and
structural subdivisions with real and predictable information about
organization activity. This can give opportunity to make substantial management
decisions.
Main users of
information of management accounting are top management of organization, heads
of structural subdivisions and specialists.
Top management
form strategic goals of organization control. To achieve this goals top
management receive:
·
Integrated
management reports on production results, finance and investment activity of
organization and its main structural subdivisions for previous report period
and concrete period.
·
Materials’
analysis of the influence on inner and outer factor on the results of
organization activity and its main structural subdivisions.
·
Targets
and predicted indicators for further period.
Heads of
structural subdivisions form operative strategy for realization of long term
goals of organization development. They receive management reports on
subdivisions’ activities at the concrete moment, results of their analytical
processing, plan and forecast information on subdivisions and also information
on co-operating subdivisions and contractors.
Specialists
receive information about organization’s activity and structural subdivisions
in the framework of their competence, and also forecasts of inner and outer
factors, which influence on the results of economic activity.
On the base of the above
said, main tasks of management accounting are:
·
Accounting
and flow of materials, finance and labor resources and provide information to
managers;
·
Accounting
of expenditures, income and deviations, according to them, from set norms,
standards and estimates of organization, we develop structural subdivisions,
centers of responsibilities, group of goods, technological decisions and other
positions;
·
Calculation
of different indicators of prime cost of production (services, work) and their
deviations from norms and plan indicators (full production, prime cost of sold
production and so on );
·
control
and analysis of finance and economic organization’s activity, its structural
subdivisions and other centers of responsibilities;
·
planning
of finance and economic organization’s activity as a hole, its structural
subdivisions and other centers of responsibilities;
·
forecasting
and appraisal of forecast (provide conclusion on influence of expected in
future events on the base of analysis of recent events and their quantity
appraisal of goals for planning);
·
make
up management accounting and give it to management personnel and specialists to
control production and make decisions for further perspectives.
As seen from the above list of tasks, to provide management accounting,
mainly determined by aims of management, and consequently can be changed by
decision of administration, depends on strictly planned strategy of company.
But signs characterizing management accounting as common information and
control system of enterprise, stay unchangeable, these are constant, aim set,
full information providing and making influence on objects of management by
changing outer and inner conditions.
In the framework of market economy control of management accounting
provides objective necessity. As every commercial organization choose itself
the flow of development, kinds of produced goods, volume of production, policy
of goods sell, then appear the need to store information in all these
parameters and receive necessary calculation data. Control of management
accounting is one of the main conditions, allowing leadership of organization
make correct management decisions connected with all concerned and finance
parameters.
Principle and
logic of accounting development in organization.
Logic of
accounting control on the enterprise dictate following steps:
1. Formulate accounting
determinations and their coordination with production specifics. At that step
specialists of the enterprise must themselves or with the help of consultants
look again all interpretations of accounting requests, including relationship
to property, to capital, to finance operations and others. Enterprise
specifics, as a rule, leads to big divergences of determinations.
2. To make necessary
classifications (asserts and liabilities, operations and others) is very
important to formulate criteria, laying at the base of every classification.
3. Development of accounting
principles, specific for every position. At that step the choice of reflection
method is given, i.e. what happen with property and operations and others.
4. The last step is
descriptions of order of documents of different operations, and also principles
of accounts’ and sub-accounts’ coding. This is made to show that marked on the
previous steps criteria and principles were reflected in the right way.
Accounts’ and sub-accounts’ coding must take into consideration finance and
budget structure of enterprise, providing such way forecasted and planned
sizes, and also receiving fully correlated data of analysis making and budget
correction.
Exist two main
principles of economic operation:
·
Income
and expenditures
·
Development
of accounts.
The
essence of the first principle “Income and expenditures” includes next:
economic operations (groups of operations) distributed to terms, which are
grouped into budgets depending on reflected area of activity.
Termes are divided to two
types:
·
Income
–show income, earnings of money means or earnings of none money asserts.
·
Expenditure
–show expenditures, pay out of money means or put out none money asserts.
Every economic
operation causes sum increase, according to set article or several terms.
Unlike correspondence of accounts building, where every building is reflected
on two and only two accounts on the debit of one and credit of other, it can
cause sum change to one, two or more terms.
Money terms turnover
for the period are calculated easily –by way of summarizing, and the results
are formed as a difference between “opposite” terms. So income (expenditures)
–is a difference between income and expenditures terms, correspondingly on
necessary for analysis - level of purification of finance result, and clean
money flow is calculated as a balance of income and pay outs for period.
The great dignity of
this principle is that it is intuitively understood. Its clearness is caused
by easy seen move of resources: goods –material values, money means and other
operations. Serious
shortages of that
principle caused by, things during income and expenditure registration of
sources where financing of money defects are not reflected.
The essence of the
second principle of reflection –building on accounts –similar to reflection of
economic operations in accounting books, exactly:
·
Exist
plan of accounts;
·
Every
account is active and passive and has two sides: debit and credit;
·
Every
economic operation reflected by two accounts: debit of one and credit of other
·
Results
(Balance, reserves) are calculated as balance on the beginning of period plus
sum turn over on credits or debits.
The difference
between accounting registration and management from the point of structure is
in the development of accounts and analytics on them.
So management
account, which is seen as modification of accounting, saves all dignities and
gets new ones, caused by more strict definitions of reflected phenomena, and
careful choose of accounts, and also special technology of this choice, which
allows to reflect specifics of economy activity, organisation and management of
this enterprise. Complicated control of accounts on the principle of building
is compensated by possibility to organize management accounting on the base of
already existing accounting system, without second input of information.
Budget
and budget process
One of the main tasks of accounting is in advanced prepared finance
documents for enterprise control and taking management decisions. In the process
of planning
on the base of the accounting information distinct goals and tasks are set, for
managers and organization’s subdivisions for definite period.
Planning is
one of the important tool, as it provides effective functioning of the
enterprise. Planning is necessary to overcome uncertainty and risks of future
and also make substantial input of coordination of processes on the enterprise.
View of main functions of planning is shown bellow (picture 3).
Picture
3. Functions of planning.
In the short-run,
market’s distinct budgeting is a base of planning –the important function of
management. All system of planning is formed on the base of budgeting, as all
expenditures and results must have strict financial, and better money term. If
business planning itself is necessary for clear understanding where, when and
for whom enterprise will produce and sell goods, or provide services, which
resources and what volume will be necessary for that, then budgeting is a base
of planning –it is a maximum expression of all coming results and resources in
finance terminology.
In all system
of planning budgeting is aimed on goals development, i.e. for goal sets of
enterprise, expressed in money terms. The task of accounting in the process of
planning and budgeting consists of preparation of finance information
beforehand to make effective decisions.
Process
of budgeting is based on formation, updating and appraisal of finance plans
(budgets) implementation. Budgets include all sides of organization’s activity,
and allow managers to compare all expenditures and received results in finance
terminologies for further period as a whole and its separate parts.
There
are existing many kinds of budgets, depending on structure and size of
organization, dividing of authorities, peculiarities of activity and so on. We
must attach to two main, “ideologically” different types of budget, budgets
built on the principle “from down to up and from down to up”.
The
first variant covers collection of budget information from executors to top
management of low level and then to head of the company. Using this way we
spend much time and strength as a rule on comparison of budgets of separate
structural units. Besides, often given “down” results are strongly changed by
heads in the process of budget approval, but in the case of wrong decision can
cause negative reaction of executors.
Second
way requires from the head of the company, clear understanding of main
peculiarities of organization and possibility to form a real forecast of period
under review. Budgeting “from up to down” provides coordination of budgets of
separate subdivisions and allows to give control results of sells, expenditures
for appraisal of effective wor of centers of responsibility.
As a whole,
budgeting “from up to down” is considered preferable, though on practice, we
use mixed variants, containing features of both variants.
There are some
variants of budget classification:
·
Long
term budgets –are made for longer period of time.
·
Short
term budgets –are calculated for short period.
·
item-by-item
budgets – include strict limitation of sum on every separate expense item
without giving possibility to transfer it to other item.
·
budgets
with temporal period – are specific that is unspent reserves of money means at
the end of the period and not transferred for the next period.
·
budgets
with zero level – are made again every time (from the beginning)
·
successive
budgets – have something like picture, where we make some changes during every
budgeting, reflecting current changes in comparison with stable process.
To make
budgeting system effective on the enterprise we need to definite budget
process, i.e. number of necessary conditions without which budgeting system
will not work.
First,
enterprise must have corresponding methodological and methodical base of
development, of control and analysis of budget use, and workers of management
institutions must be qualified enough to use this methodology on practice.
Methodological and methodical base of development, control and analysis of
budget use, makes analytical block (or component) of budget process.
Second, to
make new budget, to control and analyze its implementation, we need
corresponding quantity of information of enterprise activity, full enough to
have full picture of its real condition of finance state, move of
goods-material and finance flows, and main economic operations. Consequently,
there must exist system of management accounting on the enterprise, which
registers facts of economic activity, necessary to provide the process of
formation, control and analysis of budget. System of management accounting on
the enterprise makes the base of accounting block (component) of budget
process.
Third, the
budget process does not happen in “air-free space” –it is always realized
through corresponding, existing at the enterprise, organisational structures
and systems of management.
Fourth, the
process of development, control and analysis of budget realisation, presumes
registration and processing of big number of information, and is difficult to
make manually. The level of operational and register-analytical work and its
quality in the budget process, increase essentially, and at the same time
quantity of mistake decreases, when using program and technical means. Program
and technical means, used by enterprises, make program and technical block of
budgeting system.
All four
components of budget process are closely related and make infrastructure of
budgeting system at the enterprise (Table4).
Program and technical block:
-technical means;
-software.
|
|
Organisational block:
-functions of subdivision;
- order of co-operation;
system of co-operation.
|
|
Accounting block:
- accounting;
- operational accounting;
- information collection of market
state.
|
|
Analytical
block:
-
methodology of formation,
Control
and analysis of consolidated budget;
- Methods
on separate sub-budgets;
- qualified personnel
|
|
Table 4. Budget process.
Scheme bellow (sheme 5), shows the
infrastructure of budgeting system, realised by proper set of logical inter
conection between goals and their results. Ways to achieve goals are determined
by plans of measures
and valuable measure of plans –by budgets (picture 8).
Scheme
5: Infrastructure of budgeting system.
The last stage, in the
development of budgeting on the enterprise, is integration of this process to
informational and analytical system of control and positioning of budgeting as
back technology of management. Such budget control allows including logic in
the process of goals’ development and increase objective of plan data.
System of budget control
All around the world, finance management is described in the
form of three main reports (budget income and expenditures BIE, budget of
money means flow BMMF, budget balance list BBL), which looks like system of
coordinates to appreciate finance results of activities (picture 6). On the
picture point A characterizes current state of the enterprise, and B common
wished state at the end of planned period. Budgeting itself is a method of
projecting of future means of finance reports.
Picture 6. System of
coordinates to appreciate finance results.
Move from point A to point
B shows change of income, paying capacity and economic potential of the
enterprise (balance). That is why enterprise must make clear positioning and
“see everything itself” in finance coordinates, plan its move and further
circumstances in future, and find acceptable correlation between three
quantities, shown above. Foremost, it is necessary to see differences with the
aim to build every budget. Mix principles of chosen budget, records for
different kinds of budgets –standard mistake when building budget systems.
Budget of
income and expenditures –determines economic effectiveness of enterprise
activity. This budget forms main finance results of enterprise activity, i.e.
its profitability. Though, it is necessary to take into consideration that
inner accounting policy has direct influence on the meaning of items, which is
not always coincide with obligatory accounting records, f. ex. Rules of
correlation of income and expenditures.
Budget of
money means flow has more obvious character, it directly plans and registers
real flow of money means and comparatively simple for building. BMMF determines
“paying capacity” of the enterprise as a difference of earnings and “leave” of
money means for some period. Many companies start to build budget system from
it and finish with it.
And finally
the last, from finance budgets –budget on balance list, which determines
economic potential and finance state of the enterprise. BBL is a final budget,
with correct model of finance accounting it can be formed on the base of BMMF
and BIE.
Advantages
of budgeting.
One of the legal world’s
effective methods of enterprise control is considered to be budget method of
management (budgeting). This method in different variants is used almost by all
big and middle enterprises, and for the recent time became popular in small
business too.
System of budgets allows
the head to appreciate beforehand, effectiveness of management decisions, and
properly distribute resources between subdivisions and avoid emergency
situations by means of planning and control. And so, system of budgeting
combines main functions of management –planning and control.
And for modern
enterprise the task of budgeting is to increase effective work of enterprise
by:
·
Common coordination of all events at the
enterprise.
·
To bring out risks and decrease their level.
·
To rise flexibility and make it adaptable to
changes.
Hence, budgeting for
enterprise:
·
Allows
coordinating all work of enterprise.
·
Budget
analysis allows making correct changes in time.
·
Allows
updating the process of resource distribution.
·
Develop
process of communication.
·
Serves
as a tool for comparison of achieved and wished results.
Above said functions of
budgeting are also good sides of budget control of the enterprise.
As it was said , process of
budgeting closely connected with accounting control of the enterprise, as it
relies on finance and production information,
on its completeness and authenticity, and can create and use effective budget
methods of enterprise control. Without organized, systematic and controlled
system of accounting, process of budgeting can not be done. Consequently, to
implement budget method of management, it is necessary to start from accounting
system of the enterprise. It is necessary to analyze weak and strong sides of
accounting, determine whether the system of accounting is effective and whether
information, received by accounting, gives chance to achieve goals and tasks,
set by the company. System of accounting is a base for further development and
update of activity of any organisation and enterprise.