This assessment will cover the following questions:
- Sainsbury is a retail supermarket in the UK. Awareness of the role of management accounting.
- Provide an understanding of the basic models, concepts, and techniques in management accounting.
- Generate an understanding of basic budgeting systems implemented by Sainsbury.
Management accounting is that branch of accounting which deals with the analysis of financial information and then taking decisions for the betterment of the company. Under management accounting, the budget system is a crucial component as it helps in estimating the income and expenses in advance and then works in accordance to that (Otley, 2016). The present report is based on the company Sainsbury which is the second-largest supermarket chain in UK and founded by John James Sainsbury in 1869. The present report will outline the role of management accounting in Sainsbury. Further, the budgetary process and the issues relating to behavioural aspect of budgeting process will be discussed.
Budgetary process and issues of the behavioural aspect of the budgeting process
Role of management accounting
The management accounting plays a crucial role within the managing and maintaining the operations of the company. The major role of management accounting within Sainsbury is to collect and analyse and evaluate all the financial information from the results of financial accounting and then to analyse them and take decisions for the betterment of the company. the management accounting plays the intermediary role within the finance function and other functions of the company (Black, 2017). This accounting helps the company in properly planning and controlling all the activities going on within the company. This is necessary for the increment of the profitability and productivity of the company.
Techniques in management accounting
There are many different tools and techniques which are used under management accounting for proper planning and controlling of the business activities. The different management accounting techniques and tools followed in Sainsbury are as follows-
Cost accounting system- This is a system which is used in order to estimate a cost for the product and services produced by the company. this cost is estimated and fixed after analysis of so many factors like the inventory, time of production, production cost, profit margin and many other factors.
Inventory management system- This is a system which is used by Sainsbury in order to manage its inventory (Bui and De Villiers, 2017). This is very necessary because of the reason that this helps in proper management of the inventory that is whenever the inventory is needed it is being provided by the system. This system maintains and oversees the inventory form the time it comes and is converted into work in progress and the making of finished products and transferring them to the end users (Schaltegger, 2018).
Budgeting- This is another technique of management accounting which is used by Sainsbury in attaining success and maintain profitability. This is an important tool of management accounting which helps the company in making an estimated plan of all the income and expenses which can be incurred in future and to take care of them from the present time.
Budgeting is an important planning tool in management accounting which assist the company in preparing a plan for all the possible income sources and the possible application of the expenses which might take place in future. It is helpful for Sainsbury in making budget because this will be taken as a roadmap that the company has to do the things in the planned manner in accordance to the planned budget. This budget will help the company in knowing in advance that the income can be generated form which sources and how much expense can be incurred and on which activities (Ax and Greve, 2017).
Thus, this will help the company in planning in advance that how they will manage all these expanses with the provided set of income. Also, the budgeting helps Sainsbury in maintaining the balance between the income and expenses so that there is not any situation of loss for the company. Thus, this budgeting helps the company in maintaining a balance between all the possible income and the estimated expenses. Further, this budgeting also helps the company in taking some decisions like if the estimated income is not enough to meet the estimated expenses then form where to arrange for money to cater to those expenses.
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Budget preparation or process
It is very crucial for Sainsbury to have effective budgeting and controlling system so that the company works effectively and efficiently (Zeng, 2018). Thus, for this Sainsbury need to follow the whole process of budgeting which is discussed as follow-
Defining goal and gathering data- The first step in the process of budgeting is to establish and define the goals of making the budgets. This will provide a guide to the company that in which direction they have to go. Also, in accordance with the goal the data is to be collected which is matching to the established goals.
Forming expectation and reconciling data- This is the second stage wherein the gathered data is analysed and then reconciled with the established aims and goals of the business. Also, some of the assumptions and expectation are set that the following budget will at least achieve this much of level of performance. This is done in order to check that whether the collected data is matching with the goals of the business or not (The budget process, 2019).
Create budget- This is the step wherein after the reconciliation of the data the budget is prepared that is the estimation of the income and the expenses are made in order to plan for the activity. Here the estimation of the past trends of income and expenses in Sainsbury are studied then after its evaluation the budget is finalised.
Monitoring and analysis of deviation- After the preparation of the budget it is continuously monitored and analysed. This is done in order to analyse the fact that what was thought in the budget is taking place in actual or not. Here the variance or the difference between the actual and the standards set in the budget. This will help Sainsbury in outlining any deviation if present between standards and actual.
Adjusting budget- After the analysis and monitoring of the budget it is very necessary for Sainsbury to recheck the budget with the goals or the expectations of the business (Holopainen, Niskanen and Rissanen, 2019). This is majorly important because of the reason that the business runs in dynamic environment and there are many changes within the environment which might impact the income and expenses of the company. Thus, after identifying the deviation among the planned and the actual output it is very important for Sainsbury to make necessary changes for the betterment and improvement of the budget in accordance with the goals of business.
Behavioural aspect of budgeting process
As discussed above it is clear that the budgeting is very important for Sainsbury and any other company because this assist in effective planning and management of the income and the expenses of the company. The budgeting helps the company in identifying that fact that which expenses are necessary to be incurred and which are not. In similar way the budgeting is also important in outlining all the sources from where the company can avail and get finance for the better working of the company. This help Sainsbury in maintaining a balance between the income and expenses of the company (Rikhardsson, 2017). The behavioural aspect of the process of budgeting are discussed as below-
Realistic standards- The first and foremost aspect pertaining to behaviour of the budgeting process is to set the realistic standards. This is majorly pertaining to the fact that if the standards set for the making of the budget are not realistic then it will not be possible for the company to achieve it. Thus, the major behavioural aspect of the process of budgeting is to set the goals which are achievable and attainable by Sainsbury.
Frequent feedback and monitoring- This is another behavioural aspect of process of budgeting where the budget is continuously watched and reviewed. This is done to ensure that all the working of Sainsbury is going on with accordance to the planned budget (Malina, ed., 2017). This monitoring will ensure that the budget is being followed in the same manner as it is thought. Thus, this will outline any loop hole of flaws in the budget if present there.
From the above study it is concluded that management accounting plays a crucial role within the success of the company. This is majorly because of the reason that management accounting assists the company in taking effective decision for the betterment of the company. Thus, the present report started by discussing the role of management accounting which is taking effective decision for the improvement of the company. Further the discussion highlighted some of the techniques of management accounting like budgeting, cost accounting system and many others. Next the discussion described the concept of budgeting and the process of budgeting. The process of budgeting involves many different stages like goal setting, gathering of data, preparation of budget and monitoring and evaluation. In the end the behavioural aspect of budgeting process was discussed like continuous monitoring, setting realistic goals and many others.
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- Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational culture compatibility and perceived outcomes. Management Accounting Research. 34. pp.59-74.
- Black, W.H., 2017. Book review: History of Management Accounting in Japan: Institutional & Cultural Significance of Accounting.
- Bui, B. and De Villiers, C., 2017. Business strategies and management accounting in response to climate change risk exposure and regulatory uncertainty. The British Accounting Review. 49(1). pp.4-24.
- Holopainen, R.M., Niskanen, M. and Rissanen, S., 2019. Management Accounting and Profitability in Private Healthcare SMEs. International Journal of Public and Private Perspectives on Healthcare, Culture, and the Environment (IJPPPHCE). 3(1). pp.28-44.
- Malina, M.A. ed., 2017. Advances in management accounting. Emerald Group Publishing.