Financial Accounting & Management Accounting | Assignment

Task 1
a)
Part 1-
In every business enterprises, various transaction and events take place every day; sales
are affected, purchases are made, expenses are met or incurred, payment is received and
made, assets are sold and acquired. These events arising out of the decision and actions of
management exercise their effects and impact on the operational efficiency and position
of the enterprises. Most of these transactions and events have money values or can be
measured and expressed in money values. Since they affect the operation and position of
the enterprise, they need to be measured, recorded, analyzed and reported to the
management, so that the management can evaluate their effect upon the enterprise.
Management Accounting is defined as “The presentation of accounting information in
such a way so as to assist management in the creation of policy and in day to day
operation of an understanding”.
If the meaning of managing and accounting are understood, the definition of management
accounting becomes quite clear. The main objective of the management is to manage the
company following a managing pattern comprised of formulation of plan, allocation of
responsibilities for implementing the plan, organizing procedures to assist in the
execution of the plan, and control of the performance.
As compared with financial accounting management accounting is later development.
The periodicity in reporting financial accounts is much wider than in case of management
accounting data, which generally result, are reported on year to year basis. In
management accounting, weekly, fortnightly and even monthly reporting is used.

Financial Statements are required to be published and audited by statutory auditors.
Management accounting Statements are for the internal use and thus neither published
nor audited.
The fundamental objective of management accounting is to assist the management in
carrying out its duties efficiently so that it maximizes profit or minimize the losses. It
includes computation of plans and budgets covering all aspects of the business. Example:
production, selling, distribution, research, and finance. The management accounting
information is an important tool for department managers because it helps in formulation
of planning and policy, for interpretation of financial documents, to assist in decision
making process, to help in controlling, to provide reports, and to facilitate coordination of
operation. The management accounting process makes decision making process more
scientific with the help of various modern techniques. Information related to cost, price,
profit and saving for each of the available alternatives are collected and analyzed
accordingly which will provide a base for taking sound decisions.
Part 2-
A number of tools and techniques have been used under management accounting to help
the management in achieving the desired goals. For this the management accountant
normally uses the following tools and techniques:
a) Financial Planning: It is the process of deciding in advance about the financial
activities necessary for the organization to achieve the desired objectives. It
includes determining both long term and short term financial objectives,
formulating financial policies and developing the financial procedures etc.

b) Financial Statement Analysis: Financial statements are analyzed to make data
more meaningful. Comparative statement analysis, common size statement
analysis, trend analysis, ratio analysis, cash flow analysis etc. are the major
technique of financial statement analysis used in management accounting.
c) Decision Making: Management Accounting helps the management through the
technique of marginal costing, differential costing, capital budgeting, cash flow
analysis, etc.
d) Control Technique: Management should ensure that the plan formulated by it has
been transferred into action. Standard costing and budgetary control techniques
are useful for control techniques used by management.
e) Statistical and Graphical Technique: Management Accountant uses various
statistical and graphical techniques in order to make the information more
meaningful and presentation of the same in such a form so that it may help the
management in decision making.
f) Reporting: Management Accountant prepares the necessary reports for providing
information to different levels of the management by proper selection of data to
be presented, organization of data or selecting the appropriate method of
reporting.
B)
Part 1-
Management accounting system help in tracking the costs related to production of goods
and services. Cost accounting system is a type of accounting process which is used to
determine the cost of the product produced or service provided by the company. Each

Cost accounting system provides the company different methods of tracking the cost
record of the company. The cost accounting system helps to ascertain various types of
variable costs such as material and labor and fixed costs such as overheads and
depreciation on equipment.
In actual costing all the production cost related to actual cost of material, actual cost of
labor, actual cost of overheads incurred. Thus the costing system includes only actual
cost incurred and experience based allocation of cost. Normal costing is used to derive
the cost of production based on actual cost of material, actual cost of labor and a standard
overhead rate applied on product actual usage. If there is a difference between standard
overhead cost and actual overheads cost then the difference is applied to cost of goods
sold or to the costing profit and loss account. Standard costing is the substituting the
expected cost for the actual cost in the accounting record and then periodically record the
variance that is the difference between expected and actual costs. The reason of using
standard costing there are in certain cases it is time consuming to determine actual cost,
so standard cost are used as a close approximation of actual cost.
Part 2-
Inventory management is a management tool to effectively manage the inventory i.e.
incoming and outgoing of inventory from the company. Traditionally it was done
manually but in the present scenario it is managed using the information technology
software which saves lots of time of personnel of company.
Part 3-