Principles and Techniques of Management Accounting for Financial Problem Solving

This report discusses the principles and importance of management accounting, methods and techniques for management reporting, advantages and disadvantages of budgetary tools, and how organizations are adapting management systems to respond to financial problems. It also includes a comparison of different techniques and methods used for management accounting reporting.

UNIT 5 ASSESSMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
REFERENCES................................................................................................................................1

INTRODUCTION
Accounting management is the process which helps the accountants and managers to take the
decisions of the company related to the accounts (Putra, 2019.). It is the process which involves
identifying, analysing, interpretation and communication of the information which helps the
accountants to achieve the goals. The main role of the management of accountants is that they
prepare the data that the particular company has used for the budgeting and the planning
processes. This assessment report will discuss the principles of the management accounting and
its importance. Along with this, it will also include the methods and techniques for management
reporting as well as the advantages and disadvantage of the budgetary tools and the adaptation of
the management systems in respond to financial problems.
MAIN BODY
The principles of management accounting and its importance of including the management
accounting systems in organization-
Management accounting is the process of the identifying, measuring, analysing and
interpreting the information of the accounting (Steccolini, 2018). This helps the managers of the
company to show the financial reports of the company and by this effectively managing the
operations of the company. The main functions of the managerial accounting is the transaction
analysis. Inventory valuation, capital budgeting analysis and many more.
Some following principles of the management accounting which must be followed by the
Eastern Engineering Co. Ltd. Such as-
Designing and Compiling- The accounting information reports, records the statements as well
as the other evidences of the past, present and of future. The data is designed and compiled it
helps the organization to meet the needs and expectations of the specific company and of the
specific problem. Eastern Engineering co. Ltd. Using this principle will help in recording the
data for the future use.
Management By Exception- This principle of management by exception is followed while
presentation of the information to the management. It includes the budgetary control system as
well as the standard costing techniques which are to have ensured to follow in the management
accounting system (Prasad, 2020). This helps in measuring the actual performance of the
organization as compared to the predetermined outcomes of the company. As when these

predetermined outcomes are less than the actual performance of the company by this it can be
seen that the management is not working effectively. The Eastern Engineering co. Ltd.
Following these principles will help the company to effectively manage so that the results can be
achieved.
Accounting for inflation- It is very clear that the money value is not stable. It is very important
to access the value of the capital which has been contributed by the owner of the company by
going through the revaluation of the accounts. The principle in this way helps the company to
analyse the rate of inflation for the successful business (Maheshwari, Maheshwari and
Maheshwari, 2021). Eastern and Engineering co. Ltd. Will going through this principle helps
them to understand and evaluate the rate of the inflation.
It is very important for the organization to integrate the accounting management in every
organization and for the Eastern and Engineering co. Ltd as well. The management accounting
helps the managers of the company to take effective decisions of the organization as
management accounting helps the accountants to identify the signs of the problems. The
management accounting through this financial and non financial information is provided which
helps the managers in appropriate planning of the business activities.
The different techniques and methods used for management accounting reporting-
There are various techniques and the methods which can be used by the accountants
while management accounting and in the Eastern Engineering co. Ltd as well are such as-
Historic Cost Accounting- This the technique which helps in providing the past data for the
management which are related to the cost of the job role, process and the overall department of
the organization which can be compared with the standard costs. This comparison is much
helpful to the Eastern Engineering co. Ltd as this provides them for the future planning as well as
the cost control.
Budgetary control- This tool or technique is used by the accountants in the management
accounting process for the planning and controlling the various operational activities of the
business (Nigrini, 2020). This is the most technique for controlling and directing the operations
of the company on the right path which leads to achieving the high returns on the investments.
Eastern Engineering co. using this technique will help the company to plan and control in an
effective way.

Capital Budgeting- It deals with the analysis of the information which is required for taking
decisions related to the capital expenditures. In the capital budgeting analysis the accountant of
the management accounting calculates the net present value and the internal rate of the return
which helps the managers of the company decide the new decisions related to the capital
budgeting (Jones and et.al., 2018). Eastern Engineering company using this capital budgeting
technique helps them to analyse the capital of the company.]
Inventory valuation- This method or technique of the management accounting involves the
analysis and the identification of the actual costs of the products and inventories of the company.
This generally includes the calculation of the overhead charges and the assessment related to the
direct costs of the cost of goods sold (İlgün and Uğurluoğlu, 2019). The Eastern Engineering
company using this technique or method provides them the actual cost of the inventories of the
company.
Marginal costing- The management accounting technique which helps the company to evaluate
the marginal cost, decision-making as well as the profit maximization of the company. Eastern
Engineering contd using this technique of management accounting will help them to analyse the
marginal cost.
Cash Flow Statement- This cash flow statement gets affected by the increase or decrease in the
working capital of the company and it is very important and useful for the company as it helps
them in long term planning of the company. There may happens that according to the cash flow
statements the company is able to meet its liabilities, and they still cannot do that. This occurs
because of the accumulation of the inventories and the increase in trade debtors of the company.
Eastern Engineering company will enable to know the actual working capital of the company.
Revaluation Accounting- The accountant of the management accounting using these techniques
ensures about the maintenance and preserving the capital of the company. This helps the
company to acknowledge the impact of the price change while the preparation of the financial
statements of the company. Eastern Engineering company using this technique of management
accounting will help them to understand and evaluate the changes in the price.
Advantages and disadvantages of the budgetary tools-
The budgetary tools are very necessary for the organization as it helps them in better
understanding of the position of the company in the context of the revenue for paying the
expenses of the company. Creation of the budget helps the company in contributing in the overall

success and achievement of the company (Armstrong, Brewer and Steinberg, 2019). Analysing
the budget of the company helps them to take the decisions for the planning that is by knowing
the expenses, profits and revenue for the future. It also helps the company to analyse the
potential problem where the revenue is not generating in the company.
The Eastern Engineering company using the budgetary tools will help them to evaluate
and analyse the budget of the company for taking the effective decisions. The budgetary tools
which can be used by the companies such as Scoro, Centage, Prophix and many more (Petera,
Wagner and Šoljaková, 2020). There many advantages as well as the disadvantages of these
budgetary tools such as-
Effective Planning- Budgets are very important for analysing as it they are planned. Using the
budgetary tools it helps the companies to know the amount which should be spent and the
income which is expected. Budgeting tools provides the companies in taking the effective
planning for the company.
Controlling- The budgetary tools helps the company to have control on the spendings of the
company. When the actual results are compared with the budgeted performance this shows
where the control is needed.
Maximizing the profits- The main aim of the budgetary tools is to maximize the profits by
analysing the budget needed for every area of department in the company. The budget when
effectively managed helps the company in achieving the higher profits (Zandi, 2019.).
There are many disadvantages of the budgetary tools as well, these are such as-
Inaccurate estimates- It may happen that the estimates from these budgetary tools are not
accurate and can provide the wrong information. The effective and suitable budgetary tool is that
which provides the accurate estimates of the budget.
Simple process- Using the budgetary tool sit becomes easy for the companies to control the
budgets of the overall organization (Holweg and et.al., 2018.). Because of the fixed standard of
the budgets and efforts made by the accountants of the management tools makes it easy for the
control and analyse.
Ensures the economy working- The budgetary tools helps in analysing the overall budget of the
company including all the departments. Each one of the department uses the resources equally by
managing the proper budgets which helps the company to increase the overall productivity of the
company and works more effectively.

Expensive- Using the budgetary tools for analysing the estimates of the company is much
expensive which creates the disadvantage of these tools. It is very costly and time-consuming
process and also takes many efforts. The companies which requires the quick results may have
less interest in using these tools.
Lack of cost benefit- Budgeting by using the budgetary tool is very crucial exercise performed
by the accountant of the management accounting. This process can only be proved effective
when there is positive relation between the cost of the system and the benefits from the system.
Lack of co-ordination- The success of the budgetary tools is highly depended on the co-
ordination between the departments of the company. The performance of the one department has
effect the other so through these tools it becomes very difficult to measure and analyse the
financial problems sometimes (Polyakova and Tsurik, 2019).
Compare how organizations are adapting management systems to respond to financial problems-
The organizations can use many methods of the management systems to deal with the
financial problems of the company. These can be such as-
Key performance Indicators- These helps the accountant of the management accounting to
track the financial performance of the company. KPI's are considered as the best tool for
measuring the financial health and position of the company (Akhmetshin and et.al., 2018). The
Eastern Engineering company uses this tool in their management systems of the accounting for
dealing with the financial problems of the company.
Bench Marking- This is very clear that the benchmarking allows the company to determine the
differences involved in the resource management. This helps the company to perform in a more
effective and better way which leads to improving the efficiency, reducing the costs and many
more (Li, 2018). Unilever uses this tool for solving the problems related to financial because it
helps the company to compare the income and expenditure of the business.
Variance analysis- This tool helps the companies to manage the annual budgets by effectively
monitoring budgeted figures by comparing it with the actual cost. Eastern Engineering company
uses this tool for solving the financial problems as this helps them to evaluate the data and
compares it with the actual performance of the company.

CONCLUSION
This assessment report has discussed the principles of the management accounting such as
designing and compiling, management by exception and many more. IT has also discussed the
methods or techniques for the accounting reporting such as cash flow statements and many more
than well as the advantages and disadvantages if the budgetary tools used by the organization to
evaluate and analyse the budget of the overall company. Further, it has included the tools or
methods used by the companies to adapt the management systems to deal with the problems
relates to the financial problems of the company such as Key performance Indicators, variance
analysis and many more.

REFERENCES
Books and journals
Akhmetshin, E.M., and et.al., 2018. Internal control system in enterprise management: Analysis
and interaction matrices.
Armstrong, S.D., Brewer, W.C. and Steinberg, R.K., 2019. Usability testing. In Handbook of
human factors testing and evaluation (pp. 403-432). CRC Press.
Holweg, M., and et.al., 2018. Process theory: The principles of operations management. Oxford
University Press.
İlgün, G. and Uğurluoğlu, Ö., 2019. How Turkish private hospitals use social media: A
qualitative study. Journal of social service research, 45(1), pp.34-43.
Jones, C.,and et.al., 2018. Financial Management for Nurse Managers and Executives-E-Book.
Elsevier Health Sciences.
Li, W.S., 2018. Strategic Management Accounting. Management for Professionals.
Maheshwari, S.N., Maheshwari, S.K. and Maheshwari, M.S.K., 2021. Principles of Management
Accounting. Sultan Chand & Sons.
Nigrini, M.J., 2020. Forensic analytics: Methods and techniques for forensic accounting
investigations. John Wiley & Sons.
Petera, P., Wagner, J. and Šoljaková, L., 2020. Strategic management accounting and strategic
management: The mediating effect of performance evaluation and rewarding.
International Journal of Industrial Engineering and Management, 11(2), pp.116-132.
Polyakova, T. and Tsurik, T., 2019. Urban environment quality and its impact on socio-
economic development. Economic Annals-XXI, 180.
Prasad, L.M., 2020. Principles and practice of management. Sultan Chand & Sons.
Putra, Y.M., 2019. Analysis of factors affecting the interests of SMEs using accounting
applications. Journal of Economics and Business, 2(3), pp.818-826.
Steccolini, I., 2018. Accounting and the post-new public management: Re-considering
publicness in accounting research. Accounting, Auditing & Accountability Journal.
Zandi, G., 2019. Factors affecting environmental management accounting and environmental
performance: An empirical assessment. 670216917.
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