Financial Techniques for Managers

Financial techniques
for managers

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
a. Comparison of management and financial accounting............................................................3
Analysis of financial and management techniques used for recording financial information.....6
M1 The way in which a specific business organisation integrates financial and management
accounting systems into their organisational processes...............................................................7
TASK 2............................................................................................................................................8
Evaluation of usefulness of financial and management accounting statements to stakeholders. 8
TASK 3..........................................................................................................................................10
a. Analysis of the components of working capital.....................................................................10
b. Explanation of the way in which business organisations can manage the working capital
effectively..................................................................................................................................11
c. Use of ratios for the purpose of measuring the performance of a business organisation.......12
Evaluation of the usefulness of ratio analysis when assessing organisational performance.....14
TASK 4..........................................................................................................................................14
a. Use of appropriate project appraisal techniques assess and demonstrate the financial
viability of each project.............................................................................................................14
b. Evaluation of various types of methods of investment appraisal and recommendation for the
most appropriate project for the enterprise................................................................................17
D1 Evaluation of the benefits of management accounting techniques in supporting financial
decision making to ensure long term financial stability............................................................18
TASK 5..........................................................................................................................................20
a. Calculation of total and unit costs for all the finished items..................................................20
b. Production of absorption costing statements and showing marginal cost.............................21
c. Calculation of labour, overhead and material variances........................................................22
d. Interpretation of variance results by paying attention towards financial and non-financial
factors.........................................................................................................................................24
e. Evaluation of the use of different costing methods in the pricing procedure........................24
CONCLUSION..............................................................................................................................24
REFERENCES..............................................................................................................................25

INTRODUCTION
Financial accounting can be defined as the process of recording financial information in
the books of accounting so that actual position of business could be determined. While planning
to analyse that long-term business goals such as higher profits and increased sales. If the
managers of the organisation are not able to formulate all the final accounts then it will be very
difficult to analyse the actual position of business. While performing tasks related to financial
accounting it will be very important to follow specific rules and regulations that are formulated
by the regulatory authorities so that transparent records could be made (Ahamed and Haleem,
2020). Main aim of this report is to understand the importance of financial accounting for
managers so that they can formulate decisions for future. Present report is based upon one of the
largest retailers of UK which is Tesco. The founder of it was Jack Cohen and its headquarter is
on Walwyn Garden City, United Kingdom. This assignment covers various topics such as
analysis of management and financial accounting systems and techniques for recording
information related to them, components of working capital, the way in which business entities
can effectively manage working capital etc. Additionally, ratios to measure the performance of
business, usefulness of financial and management accounting statements to stakeholders, use of
investment appraisal techniques, use of different techniques to formulate costing statement etc.
are also covered in this report
TASK 1
a. Comparison of management and financial accounting
Management accounting: It could be defined as the technique which is used for the
purpose of generating internal records of an organisation. Main purpose of it is to make sure that
detailed information of business is shared with the internal stakeholders. In Tesco all the
managers are using it to make sure that all the requirements of all the internal stakeholders are
fulfilled in systematic manner. With the help of it all the senior managers try to formulate
effective decisions for future so that they can meet predetermined goals and objectives of
business (Zhao, 2020).
Financial accounting: The process of formulating final accounts is known as financial
accounting with the help of it actual position of business could be determined. Apart from this, it
can also help to make sure that the business will be able to sustain in the market or not. In Tesco

it is focused by the accountants as they want that they should formulate all the reports properly
so that they entity can meet all its long as well as short-term objectives (Angeles and
Kemmerling, 2020).
Comparison of management and financial accounting systems: In all the entities
different types of systems under management and financial accounting are used. It is very
important for all the accounting professionals to be aware of all of them so that they could be
used for formulation of long-term objectives. In Tesco various types of management and
financial accounting systems are used which are compared below:
Management accounting systems: Cost accounting system is used in management
accounting for the purpose of recording detailed information of cost so that it can help to analyse
the actual costs for running a business. It also guides the managers to make policies and
strategies for future so that decisions for making decrement in the cost could be formulated
(Tettevi, 2019). Price optimisation system is used by the managers of Tesco to determine the best
suitable price for all the items that are sold by it to the clients. With the help of it, the managers
can make decisions for formulation of appropriate prices for all the products according to the
purchasing power of customers so that the objective of them as well as the entity could be met.
Inventory management system is used in management accounting for the purpose of keeping
detailed information of all the goods that are used by businesses. It helps the managers of Tesco
to make sure that they are having sufficient goods to meet client's requirements. Cash flow
forecasting is an important system of management accounting which helps businesses to ignore
the situation of running out of cash. Capital investment appraisal is also a management
accounting system which is used in Tesco for the purpose of selecting best suitable investment
option for business. Budgeting and budgetary control are used by the enterprise for managing
and maintain the business activities so that all the desired goals and objectives could be met.
Marginal costing is used in MA for determining cost of additional units that are manufactured by
businesses during the year. Absorption costing is used for making sure that all the expenses that
have taken place in production activities should be absorbed from sales of same units. Break
even analysis is also a management accounting system which is used within the organisation for
analysing the sales at which the entity will be able to meet the point where it will be in the
situation of no profit and no loss.

Financial accounting systems: One of the financial accounting systems is single entry
system which is used by small entities for the purpose of recording each and every transaction
which has taken place during the accounting year so that detailed information of all the activities
could be maintained to determine the actual profitability. Double entry system is used by all the
large firms such as Tesco so that all the transactions, incomes and expenses could be justified for
the year. If it will be used by the companies then it will be very important for all of them to make
sure that all the transactions are recorded in at least two accounts. Apart from this, it also assures
that the total of debit and credit side matches to each other. Day books and journals are also
known as financial accounting systems which are used for recording all the records of the
transactions that are made by entity on daily basis. Trial balance is also a type of it which is used
in Tesco for assuring transparency and accuracy of all the aspects that are recorded in ledger
accounts. All the annual financial statements that are generated by businesses on yearly basis are
known as financial accounting systems. In businesses like sole traders, private companies and
partnership firms some of the final accounts that are generated are income statement and balance
sheet. Apart from this, the businesses such as Public Limited companies like Tesco generate
various financial statements. Some of them are annual reports, balance sheet, cash flow, auditor's
report, director's and chairperson’s report, general corporate information etc. All of them are
generated on yearly basis in the entity for the purpose of meeting all the financial goals and
objectives.
Benefits of management accounting systems: There are various benefits of
management accounting systems all of them are as follows:
 With the help of cost accounting system, the managers can analyse the cost of all the
activities that are performed by the organisation so that effective policies for future could
be formulated.
 Price optimisation system helps to set appropriate prices for all the products so that
business as well as client’s goals could be met (Begkos, Llewellyn and Walshe, 2020).
Benefits of financial accounting systems: Various benefits of financial accounting
systems are as follows:
 With the help of double entry system, the entities can justify all the expenses so that
actual position of business could be determined.

 Financial accounting systems help to assess actual performance of business by recording
all the transactions in at least two accounts and matching total of debit and credit side.
Integration of financial and management accounting systems into organisational
processes: All the financial and management accounting systems are integrated with
organisational processes. Cost accounting system helps to formulate future strategies so that all
the operations could be carried out in future. Price optimisation system is used for pricing
purpose and it helps to set appropriate prices for all the products and services that are sold by the
entity to the clients. It can help to meet business objectives such as high level of customer
satisfaction. Double entry system is also integrated with organisational processes because it
guides the accounting professionals to make sure that they are recording all the transactions
properly in relevant books (Bektur and Arzova, 2020).
Analysis of financial and management techniques used for recording financial information
In all the entities like Tesco different types of techniques are used for the purpose of
recording financial information. Some of them which are related to financial accounting are as
follows:
 Comparative financial statements: Under this technique all the financial statements
such as profit and loss account, balance sheet etc. are generated which are used for the
purpose of analysing actual position of business. If the organisation will not be able to
formulate all of them properly then it will be very difficult to meet future objectives.
 Ratio analysis: This technique is also known as trend analysis in which different ratios
are calculated so that it could be analysed that business is progressing or not. with the
help of it, all the entities like Tesco can analyse that the decisions that are formulated for
betterment of business are resulting positively or negatively (Statman, 2018).
 Cash flow analysis: It is mainly used for formulating cash flow statement in which all
the cash transactions are recorded. With the help of it, Tesco’s managers analyse that the
financial goals are met by the entity or not. Cash flow statement helps to determine the
liquidity of the organisation.
All the techniques that are related to management accounting but used for the purpose of
recording financial information are discussed below:
 Capital budgeting: It is a technique which is used in management accounting for the
purpose of selecting the best suitable project which could be used for development of