Question

please help!!!!

Please explain in your own words why budgets might exert negative influence on accounting decisions. and please offer some examples where this might be the case.

thank you

Answer 1

BUDGETING AND ACCOUNTING DECISIONS

- WHAT IS BUDGETING

A budget is a formal statement of estimated income and expenses based on the future based plans and objectives . It is the document used by every organizations, to estimate future revenues and expenditures for the attainment of predetermined goals and objectives of business.

- HOW BUDGETING NEGATIVELY AFFECT ACCOUNTING DECISIONS

• Based on assumptions : Budgets are based on assumptions. Since it focuses on the factors which is not yet happened, the risk will be high and the reliability on such statements will be more complex. Many unforseen factors badly affect budgeting and thereby the accounting decisions of an organization. [eg : a manager might over state the size of budget, than the team actually need  ]
• Time consuming : Budgeting is a time consuming process. Since it is based on the factors thats not yet happened, the assessment of such elements are crucial and will take a lot of time. Budgeting takes up a lot of productive time, especially in volatile business conditions.
• Over expensive : Budgeting tends to over expense in accounting activities. Sometimes, business may end up receiving more than it needs , and it leads managers under pressure for such excess spending; later leads to over spending of cash. [eg : The National Bureau of Economic Research, where many organizations rush to spend excess fund on low quality projects at the end of year.]
• Restricts thinking : Budgeting restricts the thinking if accountants in decision making, since it made up of plans and practices for future. Such predetermined actions and material facts, results in thinking according to the situations in accounting flexibilities. [eg: Budgeting for the future plans resulted in performance based on the predetermined plans even the situations chaged worst.]