Budgeting and accounting are the terms used in the context of the companies with respect to the company’s financial position. While both accounting and budgeting deal with the management of money and financial transactions of the company but when it comes to their function and process both are miles apart from each other. Let’s look at some of the differences between budgeting and accounting –
Budgeting VS Accounting
Meaning
Budgeting refers to that process by which a company prepares a plan to allocate funds and resources to various activities of business so that at the end of the year company has more revenue than expenses resulting in surplus for the company, hence budgeting is a forward-looking concept. While accounting refers to the recording of financial transactions done by the company during the year in the form of financial statements like balance sheet, cash flow statements, profit and loss account and so on, hence accounting is a backward-looking concept.
Timing
Budgeting is done at the start of the year because the idea behind budgeting is to make budgets or estimates which are forward-looking and ensured that all departments and workers try to achieve the targets set during budgeting while accounting is done at the end of the financial year because the idea behind accounting is to summarize and present the true financial position of the company. In simple words, budgeting is done at the beginning of the financial year while accounting is done at the end of the financial year.
Flexibility
Budgeting has flexibility because the company can change or amend the budgets according to the requirements as it is not guided by any conventions or principles but when it comes to accounting it is more rigid and one cannot make any changes to accounting statements due to various accounting conventions and accounting principals involved in making of accounting statements. In simple words just like expectations can be changed or modified but reality cannot be changed or modified, in this case, budgeting is like expectations while accounting is like a reality.
Strategic and Operational
Budgeting is more strategic in nature in the sense that budgeting is done by top-level management or middle-level management while accounting is more operational in nature in the sense that accounting records are prepared and maintained by lower-level management. In simple words in the case of budgeting the type of work is more strategic in nature while in the case of accounting the type of work is more clerical in nature.
Types
In the case of budgeting, it can be of many types like incremental budgeting, activity-based budgeting, zero-based budgeting, value proposition budgeting and so on which are used by the companies to prepare budgets while in case of accounting there are basically three types of accounting that are financial accounting, management accounting and cost accounting which are used by the companies to maintain accounting records of the company.
Internal and External
Budgeting is done for internal purposes implying that it is useful for internal management in assessing whether the company is able to achieve the targets set during the budget or not and if there is any deviation then reasons for deviations are examined while accounting is done for both internal as well as external purposes because apart from company external parties like creditors, government, tax authorities, stock exchanges and so on are interested in looking at accounting records of the company.
As one can see from the above that both budgeting and accounting are different from each other and that is the reason why companies have different teams and departments for handling the budget-related aspects and accounting-related aspects of the company.